The main thing about robo-advisors – they are cheap and comfortable to use because you do not have to do a lot of work. However, can tech like this answer the asset allocation questions forever? 

Before diving dip into the current trends, AI algorithms, and explaining something sophisticated, let’s quickly dive into the basics and ask ourselves – what is the oldest robo-advisor solution on the stock market? Can you try to guess? Maybe it’s some Interactive Brokers’ solutions or Betterment? Maybe some robo-advisors that are rebalancing the portfolio of tech stocks and bonds? Actually no, we need to look in a different direction. 

Let’s check the S&P 500 index. To participate in it, any business would need to: 

• Have a market capitalization — which refers to the total value of the company’s outstanding shares — of at least $8.2 billion
• Be based in the US
• Be structured as a corporation and offer common stock
• Be listed on an eligible U.S. exchange
• Have positive as-reported earnings over the most recent quarter, in addition to over the four most recent quarters added together.

Still would be good to mention that a special committee checks the selection of this stock every quarter. But let’s say we do it with a computer program? Can we have a set of certain parameters for our stock picking that are similar to the ones I described above? To ones who are familiar with programming – it will be a super simple task. The answer will be: Yes, we can re-create the index that would be similar to S&P 500 index and performance would be the same... 

So, can robo-advisor answer the asset allocation question forever or for a long period (10-20 years)? Well, in a sense – it’s a proven case already and it’s been proven by S&P 500 and many other indexes. Robo-advisor in this case is the algorithm that does calculate all the stocks multiples and creates a list of the stocks (each quarter in the case of S&P 500). So, robo-advisor is modern tech that replaces old human manual looking at stocks and doing all mechanical and repetitive work on the paper. 

I wanted to dig deeper and see if S&P 500 answers the asset allocation question well and in the most efficient way. Can we create a set of parameters that will do Warren Buffet’s job? Or can we buy only undervalued, but fastest-growing stocks? Let’s say we would choose only positive EBITDA, with a market cup of $10 billion+, EV/Sales ratios below 2-6 with the last 4 years of growing earnings and margins, and with low debt, and buy all the stocks after this search results and rebalance it each month or each quarter? The answer will be – we will see only undervalued companies in those picks. The pick above – it’s almost a Warren Buffer approach to stock picking. But are there any ETFs or solutions that can automate the stock picks in the undervalued zone for me? 

 I went web to find some solutions. Surprisingly, the choice is super low generally in this area: 

• Index ETF based robo-advisors that are rebalancing stocks and bonds (Good, proven, but fairly regular returns – not what I want for the aggressive part of my portfolio).
• Companies such as E-TORO or Betterment – pretty good solution – but not exactly what I was looking for, as they didn't have a focus especially on the undervalued part of the stock market.
• Buy Berkshire Hathaway stock – good, but too big and getting to similar to S&P 500 returns level because it’s so big.  
• High net worth investment funds.

Later on, accidentally I discovered a super interesting and unique solution in terms of automating the selection of undervalued stocks: 

Enhanced Investments – they are entering the North American market, but it sounds like most promising in terms of high-growth ETF's-like strategies. They pick undervalued stocks based on certain criteria and the algorithm buys a bundle of them. Solutions and strategies are 100% open box.

I will not speak more over here, but the returns are great, and I believe in the big potential of these strategies.

I wanted to see how deep I can go into the research and was able to get ahold of their founder and surprisingly I had one of the best conversations on the investment topics in my life. They have around $20 million assets under management and a good part with them - that the entrance point is not that big. 

The owner of this project used to be managing a 1-billion-dollar investment fund, and my conclusion is that more and more secrets from professional investors are getting to the retail markets thanking the internet and current trends. I believe we would see really good development of the products such as Enhanced Investments, that offer a new and interesting long-term type of solutions for any portfolio type and can help to answer asset allocation questions in a stock market even better. 

(My post is just a personal opinion, not an investment advice).