1. Ubanking International legal description
Legal danish entity Ubanking ApS (Ltd) welcomes investors on the Ubanking International software platform, www.ubanking.dk. This software is a succession of www.investmentexcel.com. Ubanking.dk is accessible for all global investors, but is particular designed for the Nordic countries, US, UK, EU and India. All regions where investment solutions among other things are founded in local currency and local equity (home-bias).
Ubanking is despite its name, not a bank, but a FinTech company that generally builds digital platforms for investors to analyze. As such, Ubanking ApS does not receive money from Users as do traditional banks and Asset Managers. User hence has 0.00 counterparty risk on Ubanking, and pays via a monthly subscription fee to access functionalities. All subscription fees can be readily terminated on the platform.
2. Ubanking International investment objective
First and foremost, the objective is to equip global investors with a software that facilitates investment analysis and portfolio construction. An in-build mathematical model makes sure invertors, at any time can easily create an optimal portfolio based on market exceptions of interest rates and equities. Within this framework, investors have several options to professionally modify, and assess dynamically impact on expected future values.
Second, application of the in-build design of investment solutions, essentially reduces the difference between so-called “professionals” and so-called “amateurs” to a flip of coin. Under EMH the only advantage in the hands of professionals, is the ability and knowledge of creating diversified profiles to dynamically make sure that clients don’t pay too much in terms of risk of a given return level.
Rebalancing a few times of the year on the Ubanking platform, clients have matched expensive bank management.
3. Ubanking International philosophy
The Ubanking model is calibrated to risk and returns of Exchange Traded Funds (ETF’s) in various regions, countries and asset classes. Simple investment fund structures, with underlying passive management by the bank distributor (e.g. BlackRock Inc). Ubanking is at the heart, an academic model with structures founded in solid research over decades. So, costs only reflect the cost-price of replicating individual indices, as S&P and DAX, via passive ETF’s.
A core principle of goods markets microeconomics, is that in a perfectly competitive market without friction, the price on a product is exactly in equilibrium, at the marginal cost including any alternative costs. This has also been shown to be the case theoretically and empirically in competitive financial markets. Example: Investor pays market price of 30% in risk for 6% in expected return on a stock. The goods market label of this condition, is known as the EMH in finance.
The Efficiency Market Hypothesis (EMH), though overwhelmingly evidenced in academia, is still subject to much debate today. Not at least between the banking industry and the academia. Why? Because in absence of EMH banks can of course “only” generate revenue to cover their marginal costs.
Moreover, they cannot promote active management skills to attract clients. In a world with access to fully diversified ETF’s in literally all corners of the financial world, banks are highly reliant on continuously fueling the non-EMH idea that allows for banks to create excess riskadjusted returns. As such Ubanking International offers access to optimized portfolio constructions based on lowest possible costs.
4. Ubanking International investment approach
In-build in Ubanking International is an investment approach to global portfolio management. Given the market expectations of key driving variables of risk and return, Ubanking has a discretionary approach, involving portfolio profile changes in the short term and in the long-term.
Short-term the Ubanking 4 standard profiles change according to a risk-aversion parameter defined by Ubanking ApS. It is a cyclical (U-cycle) tolerance approach, allowing all profiles to deviate in risk around the U-trend risk. This U-trend needle in the compass is founded on long-term or equilibrium market expectations the next 5-10 years (BlackRock, ECB and IMF).
5. Ubanking International investment universe
The Ubanking International platform has 2 dimensions in the investment universe approach. A standard and a flexible one. The standard one is alongside “Cash” a set of 7 carefully selected ETF’s, spanning sufficiently the global risk and return space for more than 95% of investors. 3 ETF’s capture risk and return in the Fixed income space, via an ETF in both the short and long end of the government EUR rate curve. As credit risk, Ubanking applies a High-Yield EUR ETF.
In the equity main asset class, 4 ETF’s mimic the global equity space. 1 in Europe, 1 in US and 1 in Emerging Market. The last ETF is a local investor representation. So, when a Swedish investor uses Ubanking, then an ETF OMX30 is added as “local equity”. US and “Europe” investors gets both a small-cap and a large-cap ETF assigned.
Using the flexible approach (see also below) the Ubanking platform can be used for nearly all assets and asset classes. Although actual instrument names cannot be uploaded on the platform, investor’s individual expectations, can still in most cases be handled on the platform. Example: if investor wants an active investment fund in Denmark instead of the ETF representation, she must change the expected return or excess return to reflect higher costs and perhaps positive excess return. Risk (standard deviation) can be changed artificially via the single stocks risk table. Correlation is really the only practical obstruction.
6. Ubanking International Dashboard and Trade View
On the Ubanking platform an interactive flow between system and investor, eventually takes investor to the Dashboard. The Dashboard initially forms the optimized portfolio, based on certain criteria defined interactively in the entry (to Dashboard) process. From that point, on investor can start applying the “modification” tools or simply switch between the system generated 4 optimal solutions that span from low risk to very high-risk portfolios. We call these, Safe, Balanced, Opportune and Super Opportune.
Investor can similarly at any point turn to the Trade View, that dynamically updates the suggested portfolio given modifications in the dashboard. Once finished, investor can either export results to PDF or send by E-mail to herself or perhaps a financial adviser in a bank.
Short description of tools in Dashboard,
6.a Standard 4 solutions
Based on market expectations of risk and return, investor can visualize up till 30 years of projection of his initial wealth. The standard analysis also includes statistical projections of low and high values in the future. By switching between 4 standard models, investor can see the difference in return but also as a trade-off the difference in risk.
6.b Recurrent positive contributions – savings
Investor can decide to make the analysis, based on her expected monthly positive contribution to the portfolio. Add money (savings).
6.c Recurrent negative contributions – dissavings and “Retirement”
Investor can also decide to make the analysis, based on her expected monthly negative contribution to the portfolio. Subtract money (consumption). Investor can use the “Retirement” function to make his future expected wealth exactly equal to 0. Either by adjusting the monthly outflow or the horizon.
6.d Activate or deactivate bonds weight
A core function in the Dashboard is the optionality investor has to refrain from Bonds. In this case, suggested optimal bond weight is reallocated into cash. Why do we have this function? First, historically private investors don’t buy bonds (except for those implicitly in Pension Schemes). Second, its intuitively hard for most non-professional investors to accept the premise of 0%. Third, in the current market it is actually a fine call whether the traditional correlation effect between equity and bonds, will be low enough to compensate investors for loss of return.
6.e Modify local equity-bond weight and return
Investor can slide the global equity-bond-cash weight. In this way investor can easily see the trade-off between taken on more risk and getting more return. Any new equity weight, say 60%, is scaled linearly on the optimal model weights. So, Investor keeps the intra-equity optimality. Any change in global return is similarly scaled according to local model equity return.
6.f Modify global equity-bond weight and return
Investor can modify all 4 expectation of return and weight once she is in the “Modify local equity” box. Example: The system has a default value of 7,5% p.a. on Indian equities (in EUR). An Indian investor can then overwrite to 15% p.a. Investor can in this section go long and short using certificates or loans.
6.g Include single stocks
Within the 4 equity asset classes investor can decide to replace the (ETF) funds structure. What happens is, that if investor for example types in 1 (count of company)) Swedish stock, then this stock is assumed to have the weight that is selected (modified or standard). So, it overwrites and assumes all Sweden asset class is represented by 1 stock. 1 company (maybe H&M). This means that the risk for Sweden equity is the stand-alone and non-diversified risk of 1 stock (approx. 32% p.a.).
If she types in 10 Swedish stocks, then the risk is calculated based on 10 stocks with some intra-stock correlation. The expected return is identical. The rest is founded on a statistical assumption of a randomly selected stock in e.g. the Swedish large-cap index. Beta 1 and average correlation between stocks (approx. 0,25). Specific stock names cannot be retrieved because it is not needed for the system to calculate. It is just a name.
6.h Add or subtract excess return on single stocks versus market
In the “Single Stocks” section, investor can further choose to add or subtract any excess return versus local market. Example: Investor has Apple Inc in the large-cap segment in US. The system assigns currently (October 2020) 6% in USD and EUR return of S&P500. If investor believes Apple will gain another 50% on the chosen horizon then this must be added. Likewise, if investor has an active fund instead of the ETF, expected excess return can be added.
6.i Recalibration and rebalancing
The system has in-build rebalancing of investor’s portfolio. At any time, investor can enter the dashboard and retype the desired portfolio. In this way investors avoids portfolio management with mechanic rebalancing to a risk profile. Recalibration is a mechanism in the Ubanking backend. Ubanking recalibrates weights based on expectations in the short and long run. We call it U-cycle and U-trend recalibration.
7. Ubanking International and third-party contact
Ubanking International is created without any third-party reliance. At a later stage it could however become relevant to look for the following third-party involvement. First, Ubanking International is an analytical and construction tool. It is not a trading platform. A direct link from the Ubanking Trade View to actual trade is discussed currently. Second, the Ubanking software could be a stand-alone software for various parties as this would open up investors full discretionary control of financial instruments, costs and risk.