This article first appeared in the events brochure of Robo-Investing Europe 2017
Over the last few years the world has seen a dramatic growth in robo-advisory solutions to automate the process of asset allocation, and construction and management of appropriate portfolios. Despite the proliferation of solutions now available, numbering in the hundreds, there has been little focus on solving the challenge of creating and managing fixed income portfolios using actual bonds, rather than ETFs. Addressing the challenge of providing a robo-advisory platform for individual bonds is what BondIT, an Israel company headquartered in Herzliya, has been focused on since it was established in 2012.
Automating the construction, optimization and management of fixed income portfolios is a much more complex problem to solve than for asset classes like equities or ETFs, but with a market size more than double that of global equities, and with more than triple the daily volume, is a market ripe for disruption. BondIT’s expertise in managing big data, and in the application of proprietary machine learning algorithms to the world of fixed income data, has enabled the company to build a platform on which advisors and asset managers can automate the construction, optimization and ongoing management of fixed income portfolios. “Using the BondIT platform allows a user to construct a customised portfolio, taking into account investor constraints such as ratings, liquidity, bond types, etc., and optimized to hit portfolio targets with minimal risk, in a matter of seconds”, states Adrian Gostick, Chief Revenue Officer for BondIT. “The same process in a private bank could take several days”, adds Gostick.
Today the bond advisory process remains a very slow and manual process, with Excel the standard tool used to try and select appropriate bonds for an investor. Very often recommendations are based on inventory an institution wants to push rather than putting the needs of the customer first. For organizations to scale their business they must either add people, or look to technology solutions. Private banks and wealth advisors are starting to wake up to the opportunity that solutions like BondIT’s can bring. “Over the last year, we’ve seen a number of banks looking to engage in conversation with us as the realisation grows that a partnership approach can accelerate digital transformation”, explains Gostick. “And using a platform that tailors investment advice to an individual investor, and can demonstrate this with detailed audit trails, helps ensure organisations meet their fiduciary responsibilities towards their clients”.
As well as automating the construction of fixed income portfolios the BondIT platform provides alerts and rebalancing suggestions to ensure the portfolios remain optimal and within the mandates and constraints of the investor on an ongoing basis. At all stages of the workflow detailed analytics are available to show the impact of any changes in terms or returns and risk in the portfolio. “As well as traditional measures like duration and VaR the platform shows where in the portfolio the risk is coming from, for example by sector of issuer, or currency denomination of the bonds”, Gostick explains.
BondIT recently entered into a strategic partnership with Wind Information in China, the leading provider of fixed income data for the China market. “As the China market continues to open to investors, and with Chinese bonds soon to be included in global fixed income indices, providing a platform to build portfolios, powered by the most comprehensive data available for the China market, will significantly help customers enter what can be an unfamiliar and somewhat opaque market”, mentions Gostick.
BondIT is looking to build on initial success by exploring how incorporation of behavioural data into the platform can increase trade conversion rates, and by integrating into liquidity venues to take into account available inventory and ensure ideas generated can be transacted. “The fixed income markets are only just waking up to the fact that there’s an increasing amount of data that can be leveraged to bring efficiencies to the market”, says Gostick. “Whenever someone is making a decision on the construction or composition of a bond portfolio we want to support that process”.