From traditional to automated investment advising: a performance and costs perspective on eurozone robo-advisors

Abstract

Dolat Capital, a Portuguese firm which launched a robo-advisor service in 2019, has requested an evaluation of its potential to geographically expand to other Eurozone nations. As such, this paper aims to assess how robo-advising is adding value to retail investors within the Eurozone scope while comparing Dolat Capital’s performance and costs to those of the robo-advisors from Euro Area countries with the largest AuM. For this purpose, a backtesting was made to check how their portfolios have performed over the past 15 years. The main findings indicate the variables having the largest influence on performance were the fees charged as well as the investment strategy used. On this matter, Dolat Capital delivered the most consistent results, both in terms of absolute and risk-adjusted returns. Finally, while a simple-ETF portfolio, in which a Eurozone customer can invest through an online broker produces similar or even greater returns, robo-advisors also add value from a qualitative view, making a more accurate risk assessment and a fully automated portfolio management, saving time for investors. Since the backtesting was built in a dynamic excel model, it is recommended that the reader consult the file attached to this thesis for a better understanding of the results obtained. Keywords: Robo-advisors, Passive Investing, Exchange-Traded Funds, Portfolio management, Automated rebalancing, Asset allocation