Tag Archives: api

Introducing Wealthfront 3.0

By Adam Nash When we launched Wealthfront in December 2011, the idea behind our first generation service was simple: take the best practices of investment management like diversification, rebalancing, dividend reinvestment and tax-loss harvesting, and automate them so investors could get these benefits without the high fees and high minimums of the traditional industry. The advent of low-cost ETFs and the relentlessly improving economics of consumer software made Wealthfront 1.0 possible. In December 2013, we launched Wealthfront 2.0. Our second generation service built a series of high value-added services that previously were only available to the wealthy, and layered them on top of our basic service. These innovative services include our Direct Indexing Platform, Single-Stock Diversification Service, and Automated Tax-Minimized Brokerage Transfers. No other automated investment service has yet been able to replicate any of these services. Today, we are on the cusp of something even bigger: the rise of artificial intelligence applied to financial services. We believe that over the next decade, artificial intelligence is poised to transform our industry. The entire fabric of the financial system will be rethought, redefined and rewired. In order to meet this future, we need to start building for it now. So I am excited to unveil the beginning of the next generation of Wealthfront – Wealthfront 3.0. Starting today, our clients will begin to see a new experience that lays the foundation for an advice engine rooted in artificial intelligence and modern APIs, an engine that we believe will deliver more relevant and personalized advice than ever before. We are building for a future where Wealthfront will be the only financial advisor our clients will ever need. Redesigning Wealthfront for the Future To deliver on this promise, our Vice President of Design, Kate Aronowitz , and her team had to rethink our entire client experience from the ground up. Our engineering team rebuilt our front-end architecture to display results based on original research from our world-class team . The result is an entirely redesigned Dashboard that will be the center of your financial life, from which all other services can plug into and provide you a complete picture of your net worth today and tomorrow. The first thing you will notice about the new Dashboard is a projection of your net worth designed to orient you towards the long term. You will see Wealthfront 3.0 come to life with relevant, data-driven advice each time you link an account or third party service to your Dashboard. Only Wealthfront provides recommendations on diversification, taxes and fees that are personalized not only to the specific investments in your account, but also to your specific financial profile and risk tolerance. Do you have enough cash in your emergency fund? Are you holding too much stock in your employer? Wealthfront will help you. Over 60% of Wealthfront clients are under 35, and not surprisingly, many of the financial services they use are built with modern APIs for direct integration. Wealthfront 3.0 will feature direct integrations with platforms like Venmo, Redfin, Lending Club and Coinbase as well as bank accounts and external brokerage accounts. Anyone who has ever registered for a bank or brokerage account provides their address, but with Wealthfront 3.0 that information is used to automatically integrate with modern services to give up-to-date financial advice about your home. Actions Speak Louder Than Words We’re firm believers that artificial intelligence applied to your actual behavior will provide far more powerful advice than what traditional advisors offer today. The reason is quite simple: actions speak louder than words . Observed behavior can’t be fudged on the phone or lied about in person. More importantly, observed behavior may reveal insights about ourselves that we aren’t even consciously aware of. Wealthfront has been built from the ground up with the same social contract that is at the heart of fiduciary advisor: our clients trust us with the relevant details of their financial lives and we keep their information private and secure. Our advocacy for a fiduciary standard is based on the premise that it will lead to far better advice and outcomes. We understand that many older investors who meet the high minimums of the traditional industry will continue to find more comfort in a personal relationship with a traditional advisor and we respect that. However, we are building our service for a new generation of investors, and designing it to grow with the profound capabilities we expect from intelligent services in their lifetimes. The Future Starts Today On March 9th, the world was stunned when Google DeepMind defeated legendary Go player Lee Se-dol . Over the next decade various forms of artificial intelligence will be brought to bear on every industry, including financial services. This intelligence will be built on modern platforms that translate data delivered by APIs into relevant advice. We believe the ultimate financial impact of artificial intelligence on society will be far bigger than what we are building at Wealthfront. These changes will not just impact the next few months or years, they will continue to accelerate over the next few decades. Over the next two months, Wealthfront clients will begin to see these features roll out progressively across our mobile and web experiences. A journey of a thousand miles begins with a single step, and today is just the first of many. One thing is certain. Artificial intelligence is the only way to bring high quality and low cost financial advice to the millions and millions of people who don’t meet the high minimums of the traditional industry. Welcome to Wealthfront 3.0. We’re just getting started. About Adam Nash Adam Nash, Wealthfront’s CEO, is a proven advocate for development of products that go beyond utility to delight customers. Adam joined Wealthfront as COO after a stint at Greylock Partners as an Executive-in-Residence. Prior to Greylock, he was VP of Product Management at LinkedIn, where he built the teams responsible for core product, user experience, platform and mobile. Adam has held a number of leadership roles at eBay, including Director of eBay Express, as well as strategic and technical roles at Atlas Venture, Preview Systems and Apple. Adam holds an MBA from Harvard Business School and BS and MS degrees in Computer Science from Stanford University. Disclosure Nothing in this article should be construed as tax advice, a solicitation or offer, or recommendation, to buy or sell any security. Financial advisory services are only provided to investors who become Wealthfront clients. Product screenshots and projected returns do not represent actual accounts and may not reflect the effect of material economic and market factors. Past performance is no guarantee of future results. Actual investors on Wealthfront may experience different results from the results shown.

Tactical Asset Allocation – April 2016 Update

March was good month for risk assets. Let’s see if it continues in April. Here is the tactical asset allocation update for April 2016. Below are the updates for the AGG3, AGG6, and GTAA13 portfolios. The source data can be found here . These signals are valid after every trading day. So, while I maintain these month-end updates, this means that you can implement your portfolio changes on any day of the month, not just month end. FINVIZ will at times generate signals that are slightly different than Yahoo Finance. Note: I am not maintaining the Yahoo Finance versions any more. All portfolios now use FINVIZ data. Click to enlarge This month, AGG3 has one new holding with real estate, VNQ , back in the mix. AGG6 also has MTUM and VTV as new holdings. Approximate monthly and YTD performance is below. In a new change, global asset allocation is working well in 2016. Click to enlarge For the Antonacci dual momentum , GEM and GBM portfolios, GEM is back in SPY , and the bond portion of GBM is in MBB . I have changed the MBS tracking ETF to MBB, from VMBS , due to errors in FINVIZ. I also now compare the FINVIZ data to Yahoo Finance for the bond portion. The Antonacci tracking sheet is shareable, so you can see the portfolio details for yourself. The Bond 3 quant model , see spreadsheet , ranks the bond ETFs by 6-month return and uses the absolute 6-month return as a cash filter to be invested or not. The Bond 3 quant model is invested in IGOV , EMB , and VGLT . That’s it for this month. These portfolios signals are valid for the whole month of April. As always, post any questions you have in the comments.

Corporate Buybacks Aren’t What They Used To Be

“Financial Engineering” as it applies to a corporate structure usually is defined as the aggressive use of various techniques to enhance shareholder value by affecting the balance sheet. Probably none has received more attention over the last several years as stock buybacks. It seems that not a day goes by that CNBC and the financial media are reporting that companies have initiated or increased share buyback authorizations, and there has been a great deal of attention given over the last many months to whether share repurchases represent a judicious use of a corporation’s capital. In this report we will attempt to shed some light on this topic and also examine what message the market may be saying about large companies that are doing buybacks. This is possibly one of the most important questions facing market participants today since the U.S. has been in a zero or near zero interest rate environment for 87 months (an unprecedented amount of time.) During that time corporations have raised record amounts of long-term debt at historically attractive levels, while at the same time remaining voracious buyers of their own shares. The major buyback companies as a whole have outperformed over the last 7 years, since the bottom on 3/9/09. However, this recently has not been the case as we will illustrate. Now in this era where it seems there is an index for any financial asset class that can be measured, there are indexes of companies that are buying back their own shares. The performance metrics of the two most popular are reasonably similar so we will focus on just one, the S&P 500 Buyback Total Return Index (SPBUYUT). This index is calculated by S&P back to 1994 (numbers sourced from Bloomberg), though it appears a more recent creation since trading volumes and ranges don’t appear until 2013. This index is equal dollar weighted and rebalanced quarterly. It is a subset of the S&P 500 consisting of the 100 companies that for the 4 previous quarters have repurchased the largest percentage of their market capitalizations. We will compare this to the S&P 500 Total Return Index (SPXT). This index is capitalization weighted and like SPBUYUT reinvests dividends. It is thus a reasonable “apples to apples’ comparison. While we would argue that returns on financial assets have been inflated by an experimental and dangerous environment the Fed has created through QE and ZIRP, the numbers tell us that since the market low on 3/9/09, SPXT has returned 252% while SPBUYUT has returned 374%. A shorter and more recent time frame, however, tells a somewhat different story. Since the 3/9/09 market low there are 29 rolling 4 quarter periods we examined. Of the 29 periods, there have been five where SPBUYUT underperformed. There were 2 in 2012 and the most recent 3 (through this writing on 3/29/16). The largest of the 5 is the last 4 quarter roll and the underperformance number is 7.02%. So we believe that the market is starting to punish companies that are the most voracious buyers of their own stock. There are several arguments made by buyback opponents that go as follows: Buybacks steal from the future by expending resources that should be used to fund/ensure future growth in exchange for the short-term gratification of a higher stock price that is the result of the buyback. Worse yet, if financed with debt, the debt has to be serviced and paid back eventually. Buybacks do not return money to all shareholders (as dividends do) but rather only to selling shareholders; (that are now no longer shareholders) Corporate managements have an inherent conflict of interest when, as is typically the case, their compensation is determined by EPS metrics that are influenced by the buybacks they authorize. These arguments make sense to many, including us. It is likely true, however, that when the markets are near the high end of their all-time ranges, most investors either don’t care or overlook these facts. When the extended bear market that we see coming arrives in earnest, we believe the finger pointing and recriminations will arrive with it. In summary, our regular readers know that we believe the U.S. is in a long term deflationary cycle that is the result of excessive debt (see Cycle of Deflation ). The debt situation has been exacerbated for the last 87 months by the “experiment” of QE and ZIRP by the Fed. Other Central Banks have followed with their own QE and ZIRP/NIRP. During this time frame corporations have been large buyers of their own stock with much of it financed by debt. This most certainly has been a prop under the market. But as stated above, corporations are doing so to the detriment of long-term investment in the business. While in the past, indexes of companies doing buybacks have outperformed their market benchmarks, that has started to change recently. Buybacks done at elevated levels of valuation will prove to be ill conceived and ill timed (think Devon Energy and Amerada Hess which recently needed to sell equity at levels far below stock repurchase levels of the past several years). Companies doing excessive buybacks will negatively affect future growth by underinvesting in capital assets; all the worse if financed with debt. Because of the aforementioned facts and circumstances, yesterday’s stock buyback winners could prove to be tomorrow’s losers. We believe that will be the case.