Interview with bevestor—robo advisory market 2020 In conversation with Björn Schmuck, Managing Director, bevestor

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bevestor is the robo advisor of DekaBank, the investment firm of the German Sparkassen-Finanzgruppe, and can therefore draw on Deka Group’s many years of experience and expertise. Managing Director Björn Schmuck explains how the investment protection strategy and the corresponding risk management have so far proved their worth in the coronavirus crisis and his long-term assessment of the post-coronavirus market. We interviewed him as part of a large series of interviews with various robo advisors. 

 

Hello Mr. Schmuck, how would you describe bevestor’s scope of services in no more than two sentences?

bevestor offers a simple and transparent way to digitally invest and manage your assets, starting at EUR 25 per month or EUR 1,000 as a one-time investment. Private investors can benefit from innovative investment protection, attractive investment topics and Deka Group expertise.

What is bevestor’s investment philosophy?

The ‘Select’ basic portfolios are aligned to provide a balanced risk/return profile in as many scenarios as possible and a high degree of allocation stability in the medium to long term. We offer our customers five globally diversified portfolios with different risk characteristics. In principle, the portfolios are composed of equity, bond, commodity and liquidity asset classes. We include both industrialized and emerging markets. Particularly in the context of a low interest rate environment, investments in international government bonds (USA and emerging markets) and corporate bonds (investment grade and high yield) can be attractive, similarly to equities and eurozone bonds. Commodities diversify portfolios, as their correlation with the equity and bond asset classes is relatively low. The low-risk basic portfolios also include liquidity in form of near-money market funds in order to reduce volatility. The portfolio allocation is carried out on a quantitative basis.

Which target groups does bevestor address with its product range, and how many AuM and customers do you have in each segment?

We address digitally savvy customers who want a simple and competitive solution for asset accumulation or investment. We currently manage a sum in the mid eight figure range.

 


In the wake of the coronavirus crisis, our authors have spoken to a number of other robo advisors about the effects of the crisis on the industry:

To the interview series with the robo advisors


How much do private customers with an investment volume of EUR 10,000 have to pay for bevestor’s services, and how do you compete with other robo advisors and traditional asset managers?

Our service is priced at 0.8–1.0%. We thus operate within a normal price range for robo advisors.

 

What investment strategy do you pursue and how do you manage risk?

In order to create a promising investment structure, bevestor’s strategies use fundamental and quantitative expertise in equal measure: we apply Michaud’s scientifically sound resampling approach to the mathematical calculation of portfolio allocation. Compared to Markowitz’s classic portfolio optimization, this approach provides more robust and generally more diversified portfolios. The resampling approach simulates the future performance of the asset classes contained in the ‘Select’ portfolios along many thousands of possible paths. Consequently, the portfolios reflect a wide variety of future developments. This model also takes extreme situations into account. The calculation includes values relating to past risks and correlations as well as long-term return estimates made by Deka economists.

The approach outlined above forms the basis of our core satellite strategy. These satellites represent investment topics that can be added individually for each customer. Deka’s fund research department selects the thematic funds and the core portfolio. A single team is entrusted exclusively with the quantitative and qualitative selection of products. The algorithm behind the bevestor strategies always ensures that the risk profile of the strategic basic investment does not change excessively.

For customers who seek less risk when investing in securities, bevestor offers an additional, computer-controlled risk management strategy in the form of investment protection. This involves monitoring the value of the portfolio individually on a daily basis and comparing the investor’s risk budget with the current risk of loss. The risk budget is based on the selected portfolios or on the equity allocation determined in each case. If the portfolio’s risk of loss exceeds the customer’s risk budget, we switch to a more security-oriented near-money market fund. Investors can activate or deactivate the investment protection at any time.

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Meanwhile, there is a multitude of providers for robo advisory, B2B and B2C. How does bevestor differentiate itself, i.e. what exactly is your USP?

bevestor is a fully-owned subsidiary of DekaBank Deutsche Girozentrale, the Sparkasse investment firm. Our interdisciplinary team of experienced securities and digital experts develops solutions that offer private investors an easy and transparent way to digitally invest and manage their assets. This partnership enables our customers to benefit directly from the competence and experience of Deka’s experts in the field of investment and risk management. At product level, we should of course mention our investment protection strategy, which is certainly a USP in the market. Furthermore, only a few robo advisors allow their customers to add investment topics selected with an expertise similar to ours. Ultimately, however, we believe that an investment should not only be based on a single USP, but on a consistent overall concept.

What is your (marketing) strategy to gain new customers? What role do partnerships play?

We focus on further promoting our brand in the target group and thus generating new customers. Both our partnership with the Sparkasse savings banks and countrywide marketing play an important role in this respect.
Which business area do you believe holds the greatest growth potential? What areas do you want to focus on in the future or add to your business?
We have already developed a simple and competitive solution that enables private investors to invest or build up assets digitally, even with small investment amounts. This is our focus. At the same time, we recognize the ever-increasing demand for sustainable investment opportunities and will therefore shortly expand our product range in this area.

Which business area do you believe holds the greatest growth potential? What areas do you want to focus on in the future or add to your business?

We have already developed a simple and competitive solution that enables private investors to invest or build up assets digitally, even with small investment amounts. This is our focus. At the same time, we recognize the ever-increasing demand for sustainable investment opportunities and will therefore shortly expand our product range in this area.

Let us now turn to the challenges of the coronavirus crisis…

How has the coronavirus crisis affected your business so far? What are your biggest challenges right now?

We do of course notice the effects of the coronavirus crisis in our portfolios. Nevertheless, we can already state that our portfolios have weathered the past price distortions well, which can certainly be described as historic. Our investment protection strategy has also worked well, and our net inflow of funds was positive even during the explicit crisis phase.

How has the coronavirus crisis affected your customers’ returns? How would you rate yourself compared to your competitors?

If you look at independent performance comparisons of robo advisors, in 2019 we reached top ranks. With regard to the very short observation period of the price distortions, we have moved into the front midfield of providers.

What medium to long-term risks do you expect the coronavirus pandemic to pose for you and the robo advisory market in general?

We base our assessment on the research of our colleagues from the economics department. Our economists are currently expecting a U-shaped recovery phase on the markets. We are therefore quite positive about the long-term prospects of the markets. We do not believe that an exogenous shock like the coronavirus pandemic will have a lasting negative impact on the robo advice market.

What opportunities could arise from the crisis?

This crisis certainly also offers opportunities, as stock ratings have fallen significantly. A long-term investment or a regular savings plan could therefore pay off. In principle, we believe that digital investment in securities will continue to be a growth segment.

We have one last question for you …

What have you always wanted to state in an interview, but have never been asked?

Off the top of my head, nothing comes to mind. I believe you have covered all the important questions.
 

Many thanks for the interview!


In uncertain times it is more important than ever that financial services providers remain good partners for their customers and present themselves as part of the solution. You can find further information on here.


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