Note: As of 10/21/2019, Emperor Investments stopped accepting new customers and deposits. If you're looking for a robo-advisor, consider Betterment.
Are you convinced of the merits of individual stock investing, but overwhelmed by the prospects of digging through thousands of annual statements each year? Are you seeking healthy, risk-adjusted returns in an all-equities portfolio?
If so, investing through the new robo-advisor Emperor Investments may be the right option for you. We’ll explain Emperor Investments’s investment strategy, and who should consider it.
- Pure equity investing portfolios (i.e. 100% stock portfolios)
- 0.2% to 0.6% AUM management fee per year
- Interesting technology to create custom portfolios for users
Emperor Investments Details
0.20% to 0.60% AUM
Taxable, IRA, Roth IRA, Rollover
What Is Emperor Investments?
Emperor Investments is a new “flavor” of robo-advisor. Instead of investing in a variety of large, index-based ETFs to achieve a low-cost basket of investments, Emperor takes a new approach. Its approach is a blend of fundamental indexing and mean-variance optimization. Those sound like fancy terms, but they are actually simple to understand.
Fundamental indexing means buying the elements of an index (say, the S&P 500) weighted by the value of the company relative to the value of the entire index. Still sound complicated? It’s not. When you buy an S&P 500 index fund (say, VOO from Vanguard), you’re successfully implementing fundamental indexing.
Mean-variance optimization is a technique that suggests that investors should look at the historic performance of a stock, and use historic information to determine the expected risk and return of the stock in the future. Then, an investor should mathematically determine how that stock may influence the overall direction of the portfolio.
Admittedly, there are not many technologies that make mean-variance optimization easy to implement. However, many individual stock investors (especially those that rely on something called the CAPE ratio) use MVO without knowing it.
So how does Emperor Investments combine fundamental indexing and mean-variance optimization? You can read the white paper on its technology here, or you can read the bullet points below:
- Emperor Investments has a technology that picks stocks out of the S&P 500 fund. These stocks show a long history of paying high dividends. The technology also uses fundamental analysis to be sure those stocks are not overpriced.
- Humans then evaluate whether or not the company has a sustainable advantage, a quality management team, and other difficult-to-estimate variables.
- Emperor uses the recommendations of both the humans and the technology to reweight portfolios, reinvest dividends, and more.
Based on it's technology, it will put you in a portfolio of stocks that matches your criteria. This is the "robo" part. It will do this for you.
Emperor Investments Sounds Fancy — Is It Actually Better Than Other Robo-Advisors?
Almost all robo-advisors (with the exception of M1 Finance, which allows you to set your own investment parameters), force investors to choose one form of fundamental indexing or another. These robo-advisors do a great job following a set investment strategy, and one that is likely to “work” for most people.
Compared to the commoditized robo-advisor, Emperor Investments takes a totally unique approach. It invests in equities 100% (in fact, in U.S., large-company stocks with everything it has). Its primary goal is to produce high, risk-adjusted returns relative to an investor’s risk tolerance.
Outside of Emperor Investments’s white paper on this topic, I’ve never seen research on combining the strategies of fundamental indexing and mean-variance optimization.
I think it’s fair to say that Emperor Investments’s methodology is unique. I cannot say with confidence that the strategy is better. Will the strategy actually produce a smoother ride on the way to achieving your investment goal? Emperor Investments has historical data showing that the strategy would have worked in the past. However, past performance may not predict future results.
How Much Does Emperor Investments Cost?
Emperor Investments charges an annual management fee that varies based on how much is under management. It requires a minimum of $500 to get started. Since your portfolio holds 100% in equities, you won’t pay any other fees.
The fee is structured as follows:
Assets Under Management (AUM)
Less than $100,000
$100,001 to $300,000
$300,001 to $600,000
$600,001 to $900,000
More than $900,001
Most robo-advisors charge around 0.25% to 0.5% in management fees, and ETF fees are added to the investment cost. Emperor Investments makes the claim that it’s cheaper than these other robo-advisors based on the ETF management fees. However, if you look at the investment options in Wealthfront or Betterment, it’s clear that adding the ETF fees won’t push the total cost of investing past 0.45% or so.
The fact is, Emperor Investments costs more than other robo-advisors, but it costs less than most actively managed mutual funds (which charge up to 1% per year). Is it worth the cost? That’s up to you.
Emperor Investments allows investors to open traditional IRA, Roth IRA, SEP-IRA, and rollover IRA accounts in addition to after-tax brokerage accounts.
Final Take on Emperor Investments
I have a soft spot for investment companies that try to do something different at a scale that’s accessible to everyday people. I think Emperor Investments is creating a sound methodology for small investors to create individual stock portfolios.
Its fees are a touch high right now, and I’m not sure that the methodology will actually produce higher risk-adjusted returns in the future. However, they do have some compelling numbers on their site that they are advertising that makes them an interesting platform.
That said, I think the strategy sounds compelling.
Disclaimer: Mutual Funds and Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
Indices are unmanaged and investors cannot invest directly in an index.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock's weight in the index proportionate to its market value.