Robo-advisors attract investors amid bearish market

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By Anna J. Park

With an increased level of multi-layered uncertainty surrounding the global stock market, AI-based robo-advisors are attracting more investors, as their average performances have turned out to be way better than benchmark indices in the first quarter this year.

According to data released by Koscom's Robo-Advisor (RA) Center, the number of customers who use the digital financial advisor algorithm has grown to 426,539 as of March this year, a 23 percent increase from a year ago.

Local robo-advisors' entire size of asset under management (AUM) has also increased to 1.84 trillion won ($1.44 billion), as of March, which is a year-on-year increase from 1.65 trillion won.

The key reason behind the fast growth of the robo-advisor industry in the country is its stable and effective performance against market risks.

While the main benchmark KOSPI and tech-heavy Kosdaq each fell by 7.39 percent and 8.65 percent, respectively, during the first quarter this year, robo-advisors posted better average returns, ranging from a minus 1.82 percent and a minus 1.29 percent, according to investors' strategies whether seeking aggressive growth or stable returns.

"Korea's robo-advisor industry shows a solid growth rate, as the average returns by local robo-advisor algorithms turn out to be better than the benchmark indices in the first quarter," an official from Koscom's RA Center said.

"While the volatility of stock and bond markets is expected to expand in the second quarter, AI-based robo-advisors are expected to continue to show superior investment performances in the second quarter as well, based on their efficient asset allocation capabilities," the official added.

However, some market insiders point out that the performance analysis in the first quarter alone is not enough, as local robo-advisor algorithms showed much worse returns than market benchmarks in the previous two years when the stock market was bullish.

Despite such counterarguments, experts forecast that the digital financial advisor market is expected to further grow in the country.

"The robo-advisor market is expected to log a substantial growth in the future. The main reason is that these AI-powered algorithms tend to realize a more stable rate of return than retail investors' average performances. Retail investors, on average, tend to lose money in stock investments. As the use of robo-advisors could reduce their exposures to risks in bullish markets, rational individual investors are expected to increase the demand for such services," Dr. Lee Sung-bok from the Korea Capital Market Institute told The Korea Times.

The researcher also emphasized consumers' need to discern each robo-advisor program's capacity in asset allocation, rebalancing and portfolio selection.

The Koscom data showed the number of customers using paid robo-advisor programs logged an average year-on-year increase of 18.64 percent, while those who use free robo-advisor programs fell by 5.92 percent. The paid digital algorithm has been posting double-digit growth for two consecutive years.

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