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Some clarifications on indexed funds in our Robo Advisor

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Many investors ask me about the preferences of our algorithms when proposing active or passive management funds to our clients.

I have to clarify that at Feelcapital we advise our clients on a wide investment universe that covers the more than 44,000 transferable funds in Spain of 450 managers. Many of them are from independent national managers, others from international companies, and also from large financial institutions. Our goal has never been, and never will be, to discriminate against anyone.

To include these funds in our investment recommendations, we have put 4 essential requirements: they must be transferable, have more than 3 years of history, a minimum equity of 50 million euros and that the class is denominated in the euro currency.

To the question of whether we never recommend index funds, I always answer no, which also we include them in the wallets depending on the profile of each client and their investment objective. In our optimizer, the benchmark results in our passive management system tend to rank lower than the different actively managed funds in the different categories, which usually demonstrate better performance in the periods we analyze. This is reflected very clearly in the categories related to fixed income and equities, especially those related to emerging markets.

Active management has a qualitative advantage: managers work actively in search of the profitability of the participants of the fund, and they charge for it. The passive, on the other hand, follows an index and awaits its evolution. And it charges a management fee that should not be charged because those funds are not managed. If we take into account the commissions that apply, they will never be able to beat the index.

Index funds are just another investment tool, which can be useful for investors who do not have an advisor or have sufficient financial knowledge. For these, indexing is a way of having exposure to different markets. However, with good knowledge and tools an advisor should be able to find investment funds that beat index funds and the index.

Our Robo Advisor will continue taking into account the index funds, but it will undoubtedly be those of active management that will continue to prevail in our portfolios given the possibility that they have to add profitability to our clients.

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