Financial adviser magazine On Wall Street recently published a lengthy review of Covestor, including this snapshot of our progress:
If you think social media investing is about pajama-wearing day-trading amateurs, Covestor aims to prove you wrong.
The platform markets about 180 portfolios to retail investors. They are run by 135 managers, many of whom don't fit the traditional asset manager mold. There is Marine Corporal Ben Wong, a ground radio repairman who recently did a tour in Afghanistan. There is also a pilot, a homeopath, and one manager living in a boat off the Dominican Republic... "We now allow retail investors to have a user experience that feels a lot like the shopping experience they are used to for other types of goods and services they buy via the Internet," says chief executive Asheesh Advani... "We are professionalizing the team and many elements of the business process," says Advani. "We're repositioning this company to make it more of a marketplace than it has been in the past."
A look at how we present and vet new managers:
Before, the site provided a lot of raw detail about the performance of its managers, but not a lot of ancillary content to aid investor shopping. The revamped website launched in January with new functionality like search filters to find models based on categories like asset class, cap bias, geography, and sector. It also expanded manager content output.
The site also revamped risk functionality. First, it launched scoring tools on factors like volatility, Sharpe and Sortino ratios, maximum draw-downs and value-at-risk. The site also calculates investor risk tolerance, from 1 to 5, to guide selections. For example, level 1 and 2 models cannot use leverage and inverse exchange-traded funds and can't have margin. Day trading is only for level 5. No accounts mirror options or futures. All managers must invest their own money to have "skin in the game."
Moreover, manager candidates need a year's history trading their models. If they aren't RIAs, they need to disclose personal trading accounts which the platform then monitors regularly with compliance software. Covestor watches candidates for three more months before displaying to assess risk, assign benchmarks and ensure rule adherence. Roughly 50 managers are on the waiting list.
And a brief profile of Covestor manager Bob Gay:
managers get a chance to strut their stuff, like Bob Gay, former director of quantitative research at Donaldson, Lufkin and Jenrette, who uses a corporate fundamental database he created extracting data from Securities and Exchange Commissionfilings (he's moving toward using data that comes tagged in the eXtensible Business Reporting Language used by the SEC).
Over the 365 day period ending May 8th, Gay's earnings surprise model earned 9%, while his high return model made 16.9%. His hedged portfolio netted 9.9%.
"I have a convenient, low-cost, and easily accessible way of displaying the value of my portfolios," he says. "When someone asks me how I'm doing, I just tell them 'Go look at Covestor.'"
Thanks to Tommy Fernandez and On Wall Street for the coverage!