Hong Kong-headquarted Aqumon has built a robo-advisory service based on machine learning, a type of artificial intelligence, as part of the process to screen investment products and form asset allocation views to rebalance portfolios, said co-founder Don Huang.
Machine learning allows software applications to automatically become more accurate in predicting outcomes without being explicitly programmed.
The firm believes its approach is distinct from other robo-advisers in Hong Kong – Chloe launched by 8 Securities, or Youyu, a mobile app that provides allocation advice on mutual funds. They require human inputs, such as the broad asset allocation views based on macro market outlook.
Aqumon was created in the Hong Kong University of Science & Technology and funded by the Alibaba Entrepreneurs Fund.
Tailored to China
The firm said the Aqumon service can provide five to ten risk profiles for each client. Based on individual risk appetite, the service then creates a portfolio, which will have 8-10 ETFs, or, in mainland China, mutual funds, said co-founder Kelvin Lei.
“In mainland China the costs of using ETFs are much higher than in Hong Kong and the US, and it’s not efficient,” explained Lei.
Average portfolio turnover stands at 20-30% annually.
Aqumon has signed preliminary agreements with eight financial institutions, including banks, brokers and insurers, Lei said.
Initial clients include Shenzhen-based China Resources Bank of Zhuhai, brokers Guodu Securities (Hong Kong) and Fortune Federation Financial Technology, a Chinese independent wealth manager with an office in the SAR.
According to Lu Yun, general manager of wealth management at China Resources Bank, the robo-advisory business in China has developed quite recently and still needs time to do back-testing to prove its efficiency.
“We have spoken to three other robo-advisors and some insist on using ETFs or focus on investing in overseas markets. But [in China] it’s not practical due to capital controls and a rather domestic-focused [investor base].”
He expressed hope that Aqumon could be useful to clients of his bank, which tend to be less sophisticated than investors at China’s giant banks.
“For us, on-the-ground sales is very important. We hope the front-line sales can use this robo-advisor as a tool to help recommend a portfolio of funds to our clients,” he said.
Ye Yizhou, chief executive at Fortune Federation said: “In China there isn’t lack of products, but clients will say they can’t find one that suits them. We hope the product suitability can be enhanced by using Aqumon to analyse the client data, and it can offer long-term asset allocation advice in the long run.”