Covestor investors take market turmoil in stride

Investors were given a dose of adrenaline last week, as global economic fears and the Ebola outbreak created erratic swings in stock prices.

But investors may not in fact be panicking, at least from what we can see from the behavior on our own digital investment marketplace at Covestor.


Steady hand

A number of people had predicted that online investment companies would be poorly positioned to handle periods of market volatility.

At Covestor, we haven’t seen that happen.

In fact, our client advisers have taken only a few extra phone calls from investors looking to both brace themselves for a prolonged correction, or take advantage of any potential opportunities that have been created in corners of the market that have been pummeled the hardest.

In 2009, when Covestor first launched its marketplace of investment strategies, it was at the height of the financial crisis.

Back then, given the levels of distress among investors, we as a company made the decision that people want to reach a professional on the phone to discuss their holdings in times of volatility.

Investing is emotional, and at least today, the machines cannot do enough to help manage the dread that an investor can feel when they see their portfolio fall off by 10 or 20%, or more.

No panic

Our platform tries to provide this mix of machine and grey matter that gets investors through market volatility, at low cost, with investor information on our blog daily and client advisers on call when clients have questions.

Interestingly, most of the calls we took last week were from people interested in opening accounts.

Some of our portfolios are faring well, particularly many fixed income and absolute return models, and that may have drawn the attention of some investors who sought to move money from funds that are not performing well in the midst of the pullback in equities.

We have also seen very few investors moving to the sidelines. Unlike many “robo-advisers” that require clients to be fully invested at all times, Covestor accounts can also go to cash with the push of a button. We haven’t yet seen many clients dash to cash.

What we have seen is investors tinkering around the edges of their allocations, by increasing exposure to the small-cap focused strategies that have experienced the brunt of the sell-off.

Investors on our platform are also decreasing their exposure to large-cap stocks and real estate investment trusts (REITs).

Unlike mutual funds, Covestor does not charge sales loads to switch to a new manager or strategy.

Brokerage trading commissions are only $1.08 per trade, so we can see a lot of this opportunistic movement of money when investors grow restless with their positions.

We also encourage many clients to have a core portfolio of passive strategies. We offer passively managed portfolios with no management fees and often suggest a broad diversification of these ETFs to withstand corrections.

We also generally suggest an allocation to active strategies, which can be changed as needed as the market moves.

That composition is designed to help investors weather the rough patches, and so far, the allocation changes being made by most investors have tended to be in the active component of their portfolios.

Bhargav Shivarthy is the director of client relations at Covestor via Investment News.