The unprecedented turbulence accompanying the global pandemic has galvanised many people to scrutinise their financial well-being.
Amid volatile equities, soaring gold prices and low interest rates, rarely has diversification in personal investing been more essential.
But as millions seek safe yet profitable havens for their cash or ensure growth strategies match savings goals, alternative platforms and asset classes beckon those craving passive investment with relative security, regular income or empowered growth.
Omar Rabah, a management consultant living in Downtown Dubai, was among many who registered with FinTech company Sarwa, also the region’s first robo-advisory investment platform, during the Covid-19 uncertainty.
It constructs and maintains portfolios – once clients complete their investor profile, including risk tolerance – that embrace exposure to stock markets across 40-plus countries, and charges low fees.
“I’ve always wanted to invest my money because there is no point in it just sitting in my bank account … quite the opposite, it’s losing value,” says the Saudi national, 28.
“I believe in passive/long-term investing. I’m familiar with it from my studies, and it is proven to work.”
A first-time investor, Mr Rabah saw convenience as a “value add” alongside simplicity. After registering in late April, he transferred cash and continues to do so about every two months.
Sarwa is a digital company “built for remote work”, such as that driven by stay-at-home directives, explains co-founder and chief marketing officer Nadine Mezher.
She says new client flow was three times higher in April than a year ago and new deposits grew 98 per cent in the first quarter of 2020 compared with the fourth quarter last year.
“Sarwa is rooted in data-driven diversification,” says Ms Mezher. “During the market volatility, our portfolios held up well; this speaks to the proper global diversification we have in place, the choices of ETFs, and the correlation between them.
“Passive investing does not involve impulsive decisions based on market movement. It is built around research and data on what works for clients over the long-term,” she says.
Diversifying investments is seen as the best strategy, now as much as ever, as it enables investors to minimise risk while maximising rewards.
Ms Mezher says a balanced Sarwa portfolio includes holdings in large and medium-sized, fast-growing companies across major developed and emerging countries, government and corporate bonds globally that provide steady income, low historical volatility, and low correlation with stocks.
“We will help you choose a risk level you’re comfortable with based on the answers you give us and then build a custom portfolio based on your financial goals.
“When we designed our portfolios, we did so with the specific goals of our clients in mind; one is to minimise losses during periods when the stock market is down. Risk management is at the core of our investment strategy,” she adds.
With an average client age of 34, Sarwa’s model is appealing to many who are new to equities – 60 per cent are first-timers.
“Young investors who work towards early retirement saw a great opportunity when the stock market dropped,” says Ms Mezher.
“For many, it was an ideal entry point … market volatility allows them to buy more of the stocks on sale; when markets recover, and they stay invested throughout, they can win big.
“Even throughout this volatile market, more than 40 per cent of clients are consistently adding money to their accounts. The biggest investment mistake is to simply not be in the market.”
That could be said of property, another asset class that features in most balanced, diversified portfolios.
However, with UAE prices and rents at relative lows, not everyone is comfortable committing to homes that may lose more value short-term.
SmartCrowd seeks to provide lower risk entry by carefully identifying affordable, usually rented apartments and enabling people to crowdfund their purchase as a shared investment.
A diverse investor database, including residents and UAE nationals, buy shares in a property for which they receive regular dividends from rental income and enjoy an uplift when property prices rise.
Siddiq Farid, chief executive and founder, says SmartCrowd recently surpassed Dh500,000 in rental dividends.
“There is empirical evidence that demonstrates portfolios that have alternative investments such as real estate perform better than portfolios with only stocks and bonds,” he says.
“Real estate lowers volatility in one’s portfolio, meaning it reduces risk and generates regular rental income that can be reinvested to get the compounding element.
“The challenge is many investors don’t have sufficient capital to invest in real estate due to large capital requirements, and still have money left over to invest in stock and bonds.”
That members can invest from Dh5,000 for a slice of property means they can also diversify holdings within the platform, so spreading risk across addresses and their broader portfolio, and income can be reinvested.
While Mr Farid cites property as less volatile than equities, he stresses one asset class is “not necessarily better than others”.
“Our model gives flexibility and opens up a new asset class that was not accessible before,” he says.
“But it’s important you construct your portfolio so you are well-diversified and have appropriate allocation, meaning not being overly exposed to one asset class. A lot depends on individual goals as there is no one-size-fits-all approach,” he adds.
Some of SmartCrowd’s best performers have provided an annualised return of more than 9 per cent, without taking into account future capital appreciation of properties.
As several real estate experts suggest Dubai prices have plateaued, Mr Farid believes it presents “one of the best values out there”.
“Everything goes through cycles … every investment has risk and it needs to be managed,” he adds.
“SmartCrowd does a lot of homework before qualifying properties it lists. I would be a lot more comfortable investing in something that has corrected and has limited downside compared to something that has run considerably and has a tremendous downside compared to upside,” Mr Farid adds.
Like SmartCrowd, Sarwa also believes in making investing inclusive and accessible and sees trends changing.
Clients need just $500 to start, however, Ms Mezher says there’s “still more to do to help the public be better informed about their financial choices”.
“We know the pandemic affected some in a negative way,” she continues.
“However, if you have a stable source of income and have your emergency fund set aside, you should be putting your money to work and investing. Still, some are hesitant to start,” she adds.
Often, this is based on common misconceptions such as not knowing “how to start”.
But Ms Mezher says Covid-19 has brought “a whole new narrative” to many households. “We started seeing a shift in behaviour,” she says.
“All of a sudden, many realised they need better financial planning, an emergency fund set aside, as well as to start saving and investing for a better future.
“At the same time, people were looking for convenience … as a digital adviser, we started seeing an influx of demand.”
As fresh shoots of commerce appear, the same could be experienced by Beehive, an alternative business funding solution offering potentially rewarding investment opportunities.
The Mena region’s first peer-to-peer lending platform cites possible healthy returns for everyone from salaried employees and high net worth individuals to institutional investors.
Beehive has loaned about Dh600 million to more than 600 SMEs since launching six years ago.
Investors, meanwhile, can start from Dh100 in a term finance product, but must have at least Dh5,000 in their investor account within 30 days of registration.
Beehive’s package choices cover long and short-term outlooks and different return frequencies, says investment director Suraj Gopal.
“We have been able to give a return of 8 to 10 per cent through investments in a single product or a mix of products in our portfolio,” he says.
“I’ve always recommended our investors start with a small amount, build it up and as one starts understanding the platform in detail, they can increase participation.”
Mr Gopal says Beehive investments are something participants can look to add to their existing portfolio. Again, diversification is key.
“As part of any investment vehicle, risk and return are two sides of the coin and we have always advised investors to de-risk their investments by funding multiple businesses across the gamut of opportunities we are providing.
“Our assessment skills on businesses are pretty strong, that’s why our default rates or non-performing loans is less than 2 per cent”.
While some alternative investment models may appear unfamiliar or even daunting to traditionally minded investors, the choice and accessibility – as well as potential rewards – they offer broaden the market and investor offer.
With no previous investment experience, Mr Rabah was drawn to the convenience Sarwa’s AI-driven platform offered.
“Sarwa is clear on their website and I have direct access to an adviser via WhatsApp,” he says.
Mr Rabah adds: “The amount I started with wasn’t hefty. I kind of eased into investing, one transfer at a time.”