OmniFunds vs. the Robo Advisors

In 2013 the Robo Advisors began appearing on the investment landscape.

For the first time in the history of the advisory services, investors began placing their funds to be managed by algorithms run by computers.

Since the first "Robos" came on the scene, many more have been introduced.  All of them use the same concepts.

The Robo Advisor Philosophy:

  • You can't time the market
  • The best you can do is diversify and try to get market returns.
  • Low cost is what investors want.  Returns are secondary.

We disagree with all these points and will show why, after we tell their story.

Robo Advisors
ETF Blob

Robo Advisors use ETFs to manage customer accounts.

Exchange Traded Funds or "ETFs" are securities composed of many stocks.  The advantage is, they trade as a single security.

ETFs are the ideal investment vehicle.  They exist for all major sectors of the market, including Bonds, Foreign investments, Currencies and other Commodities.

ETFs are the investment vehicle of the future!​

The Robo Advisor Approach

Robo Advisors use something called "Modern Portfolio Theory" or MPT to allocate resources across different ETFs. (By the way, the paper on which MPT is based was published in 1953, which doesn't seem so modern to us...)

The Robos say they get superior results by applying a technique called "Re-Balancing": If an ETF LOSES value, the Robot Buys more of it. If an ETF gains in value, the Robot Sells a portion of it - an attempt to Buy Low and Sell High. But what if an ETF keeps going down, as in 2008? They just keep buying more of it. 

The Robo Advisors say this "Balancing" adds 0.6% to annual return. So, even by their calculation, the effect is not very significant in terms of total return.

ETF Pie Chart

How it's Worked Out in the 2015 Market

To the right is a Portfolio by Wealthfront that was recommended in 2015 - their "taxable account".

​You can see the different ETFs representing U.S. Stocks, Emerging Markets, etc. with their allocations in an account. These ETFs were chosen according to the tenets of Modern Portfolio Theory.

​Now, look at the results one would have seen in their account from January 1 through October 1, 2015.

​The problem with MPT is that when the market goes down, virtually all the ETFs recommended by MPT also go down.

​That's not very "risk-averse" in our opinion.

As long as the market goes up, MPT can yield positive returns. But if the market goes down - the result can be more than disappointing.​

Results
IBotson's Record

THEIR (IBotson's) Published Record

IBotson provides the Robo Advisor system (software) that most firms rely on.

Here is THEIR published record, including a "back test" created ahead of their public launch. The back test is labeled as "HISTORICAL" in this chart, which ends October 2015.

The results are surprising. If you had just bought one ETF, "SPY", which represents the S&P 500, you would have been up 10% over using the MPT approach!

The OmniFunds Approach

We use Technical Indicators to determine Market State.

Then we select prudent mixtures of assets (ETFs) based on measuring the INTERNAL component stocks, and other methods.

The idea is simply to LOOK AT WHAT THE MARKET IS DOING and adjust holdings based on that.

Makes sense, right? If the market is trending up, you can be LONG Equities, Bonds, and Foreign Stocks. But if it turns sideways, becomes volatile or starts moving down, you should be in Cash and defensive assets, like Gold. Or even Inverse ETFs, which we will discuss shortly.

This is the fundamental difference. We believe you CAN time the market. And we are proving that tenet to be true every day.

OmniFunds

Higher Returns. Less Risk

This OmniFund (Global Investment) beats our Robo Advisor index by a factor of 4, with Drawdowns reduced by half, yielding an overall improvement of 800%.

The only way to get these results is by doing the following on a periodic interval (typically one month):

  • Analyzing the personality of the market and selecting classes of securities that align with the market.​
  • Switching into the securities with the highest potential for appreciation according to our proprietary Probability Analysis.

Switching vs. Buy and Hold

The average Robo Advisor will keep you invested in a very specific mix of ETFs, which will almost always follow the market down. Many of them have a vested interest in using specific funds (like the Vanguard ETFs) which is good for them, but in our opinion not so great for the investor.

Switching into different ETFs periodically does incur some commission cost, but staying aligned with Market Personality and trading into the strongest securities on a periodic interval can generate much stronger returns and avoid some of the really large draw downs that we typically see. It’s all about Higher Returns with Less Risk. That’s the OmniFunds goal.

​Using the Right Broker is Important to Overall Performance

Our built-in broker, Gar Wood securities, clears through Interactive Brokers. Because of I.B.’s low commission structure, the cost of switching between securities can be as low as ½ cent per share. All other mainstream brokers charge between $5 and $10 a trade, which can be much higher depending on trade size.

The Perfect Combination

OmniFunds is the perfect combination of Analysis & Technology with one of the lowest cost Broker connections. Track our OmniFunds and experience the OmniFunds Difference for yourself!