Many fintechs have promised to bring hedge-fund power to individual investors—but just giving clients the means to trade and build portfolios isn’t enough. Allio, an emergent macro-investment app, innovates where other fintechs have fallen short.
Finance’s Prometheus moment came in the form of digital trading platforms and Robo-advisors.
These technologies promised to put the power of hedge funds into the hands of their clients and unfetter the tools of wealth creation. But—as in the Greek myth of old—when everyone has fire, many get burned.
While people have been getting blown up on electronic traders since their inception, events like February 2018’s “Volmageddon” have exposed the pitfalls of consumer-driven digital trading. In this example, a record number of investors piled in the XIV Exchange Traded Note—which was actually a mechanism to short front month VIX futures contracts. Eventually, a combination of market volatility and lack of liquidity meant the manager couldn’t successfully roll over the contracts. In a flash, XIV went to zero.
Amongst the people hurt by this was a startling number of investors who thought they had purchased a stock, not realizing they were actually holding an incredibly risky short-futures instrument.
Putting people in the driver’s seat and democratizing finance is a great thing for fintech to aspire towards. But if people don’t even realize what they’re doing, we have a big problem.
“It’s profoundly irresponsible to let untrained novices into a professional restaurant kitchen full of potentially dangerous tools and say ‘have at it— get to work!,’” Says AJ Giannone, CFA, CIO at Allio. “Everyone needs some guidance and coaching to help them have a positive experience when they’re learning a new skill”
Allio is an emergent macro investing app that looks to be the much-needed follow-up to Fintech’s Prometheus. It’s a platform that doesn’t just offer the means to build portfolios, but also the insights to make it a productive experience.
“We’re giving people a runway,” Giannone continues. “We want to give our clients the institutional tools and research to help them get from point A to point B and enable them to grow and thrive as macro investors.”
“The VC world has been looking for an innovation in fintech 2.0,” Joseph Gradante, CEO of Allio says. “They’re thinking about the guys that killed themselves because they didn’t know how much they had on—the ones who bought an option and didn’t realize the risk they were taking.”
Solving this problem has become Allio’s north star.
In the old model for fintech, users create an account, fund it, and have to figure out what the heck they’re doing—starting with first principles (which has led to the myriad problems highlighted above). To counter this, other platforms provide a more guided approach: doling out pre-built portfolios based on the user’s goals and risk tolerance—robbing the user of agency and control over their investments.
Fintech 2.0, led by Allio, moves beyond these two limited options.
“The underlying technology gives people control of what they invest in,” Giannone says, “along with guidance around how to structure those things in the context of the latest in portfolio construction and optimization.”
So what are these underlying technologies? Let’s start with ALTITUDE.
Allio’s ALTITUDE, developed by Chief Analytics Officer, Adam Damko, CFA, is the investment engine working behind the scenes of their platform. Damko, one of the latest additions to Allio’s roster of capital market veterans, brings over a decade of experience in building machine-learning models and portfolio management techniques.
“I was drawn to Allio because of the mission,” Damko says, “to make hedge-fund-style investing strategies available to individual retail investors.”
Before Damko, Allio had robust optimization systems already in place, but the CFA saw areas to grow.
“We’re continuously improving things and incorporating the latest available methodologies,” he says. “Machine learning is guiding both our forecasting of returns as well as risk estimates, which we hope will deliver superior risk-adjusted returns for our clients.”
Some emerging methodologies in portfolio optimization include machine learning clustering techniques, which can be applied to categorize asset returns. Similarly, graph theory can be employed to understand the interconnectedness of assets, providing insights that aid in diversifying and optimizing portfolios. These approaches are continuously researched and the most appropriate methods are incorporated into ALTITUDE to create robust client portfolios.
As clients create and manage portfolios on Allio, they are guided by insights from Market Reader and Morningstar, both integrated into the macro investing app. In a market where things can change quickly (and for all sorts of reasons), access to these institutional tools goes a long way.
Those with basic brokerage accounts will understand the frustration of looking at your stocks, seeing one down, trying to google what’s happening, and finding no news. Oftentimes, changes have more to do with the macro environment than they do with the specific stock. Because of this, the news investors seek can be multiple degrees removed—a problem that Market Reader was built to solve.
“Tools like these help people understand why things are happening,” Giannone says, “providing some measure of confidence that they’re on top of their portfolio (instead of their portfolio dragging them dragging them along).”
Along with this, Morningstar puts institutional-grade data and analytics into the hands of Allio clients. An order of magnitude deeper than the insights found on popular consumer-level platforms, Morningstar will be used to either validate or provide contrary evidence to an investment, along with using fundamental analysis to help clients understand if a particular stock or ETF is right for them.
These underlying technologies, which also include tax optimization, dovetail together to form Allio’s user experience. These are all tools that institutional investors cannot live without—and they’re now empowering the new wave of fintech 2.0.
Make no mistake, investing will always be risky. But with Allio’s proprietary institutional tools powered by cutting edge machine-learning technology and capital market veteran insights, Clients can capitalize on that risk and seize control of their financial future.
Prometheus brought the fire. Allio has harnessed it.
To check out Allio for yourself, visit their website.
