Germany’s digital wealth manager Scalable Capital is enjoying a boom in stock market investing in the country, driven in part by their ETF-based offering.
Jacob Hetzel, head of distribution, explains that the company provides access to capital markets, initially through its wealth management solution, which was launched in 2016, and then through its brokerage business which was launched in 2020. Investors can either go to Scalable Capital for ETF based model portfolios or can save into over 2,000 ETFs on offer. The firm has EUR6 billion on its platform.
“It is impressive how fast the business has grown,” Hetzel says. “There has been a huge boom and a huge demand from German retail investors. Historically, Germany has not been a country of stock market investors, more of savers and this is changing rapidly, and we think ETFs are a crucial part of that.”
The classic client for the digital wealth management service, where Scalable Capital manages the portfolios, is about 50 years old, with a portfolio worth about EUR40,000 while brokerage clients tend to be 10-20 years younger.
The firm´s broker has a broad offering of actively managed funds, single stocks, ETFs and derivatives, and, of course, they offer a crypto exposure through various ETPs.
“This has been a bit of a surprise for us with the younger investor, who is under 30, and how calm they are in their cryptocurrency investments,” Hetzel says. “They tend to keep buying whenever the prices dip but it’s also interesting to see many people using cryptocurrencies as an element in the portfolio context so allocated together with broadly diversified ETFs.”
The firm has two different strategies in the wealth management offering: the first is an ESG filtered globally diversified ETF portfolio. “Here we moved into the SRI category with a globally diversified portfolio across all asset classes, even including gold via ETPs.
The second is a risk managed strategy with an algorithm based on the equity quote in the portfolio depending on the risk factors, such as volatility for example. This portfolio is broadly diversified and also uses some factor ETFs.”
As an open platform, the firm uses all sorts of ETF providers from the larger DWS X-Trackers and iShares through to smaller more niche providers.
“We feel very well served by the ETF industry,” Hetzel says. “And at the start when Scalable Capital was building up, the ETF providers helped a lot with input on how to trade and use ETFs and also we found out that even in times when the markets are choppier, such as during that early Covid market volatility in Spring 2020, there was enough liquidity and trading was still possible. We were moving some large sizes of trades and the European providers were very responsive and helpful.”
Looking forward, Scalable is monitoring whether cryptocurrencies could make their way into all the strategies that they offer. “We are looking into it to see how different asset classes behave over time in the portfolio context,” Hetzel says.
Currently, the firm’s digital wealth management strategies are available at a minimum investment of EUR10,000 and they now plan to bring that minimum investment hurdle down to EUR1000 so that the service could be used by almost everyone. “We want to make the service really attractive for everyone,” Hetzel says. “People could buy ETFs on their own but not everyone is ready or has the knowledge to allocate to a portfolio so a service that works with ETFs will be available for everyone from low initial investment amounts.”
Fees on the Scalable offering are 75 basis points on the assets that people bring to the wealth solution plus the cost of the ETF itself, which is on average, 15 basis points.