Portfolios

Learn how your portfolio is put together

Portfolio construction

Get a better return on your savings by investing your money in index funds.

Your investments are managed by our partner NNEK and this page highlights how the portfolios are set up. Note that these may change by the time you become a customer.

Each investor is unique in their:

  • financial goals,
  • investment horizon,
  • financial situation,
  • attitude to risk

There are multiple portfolios set up, each optimised for a particular set of characteristics. During your Curvo onboarding, you are asked a series of questions to get to know you and learn what type of investor you are. Based on your answers, you are matched with the best portfolio.

We recognise that your financial situation and goals (and even your attitude to risk) may change over time. That's why this process is repeated regularly to make sure that your investment strategy always remains aligned to you and your needs.

Asset allocation

One of the core principles is to invest only in assets that are widely understood, that have stood the test of time and are predicted to earn significant returns over the decades to come. Concretely, your portfolios solely consist of index funds that invest in stocks and bonds.

Why stocks?

Stocks are the main drivers for returns. Throughout the decades, companies all over the world have continued to innovate and thereby yield solid gains to their investors. Global stocks have made an average annual return of 5.2% over the last 120 years, and that's after inflation [1]. There is no sign that this trend will stop: the drive to create and innovate is an innate trait of human beings.

However, there's no free lunch in investing. Higher returns always come with higher risks. In the world of finance, this risk translates to greater fluctuations in the prices of stocks. They can go up and down very quickly, sometimes as much as 45% in a good year like 1999, but also as low as -40% during a "once in a lifetime" crisis like in 2008. In finance jargon, we say that stocks are highly volatile.

To counter the fluctuations of stocks, bonds are used.

Why bonds?

Whereas stocks are very exciting (and scary when they sharply drop), bonds are very boring. They don't fluctuate as much. But that means their returns are lower, at an average 2.0% per year [1]. So one way bonds are used in your portfolio is to tame the volatility of stocks. Portfolios with more bonds relative to stocks will be better suited for investors with a lower appetite for risk.

Beyond their role of stabilising a portfolio, bonds are also great diversifiers. It turns out that oftentimes when stocks are dropping, bonds are rising, and vice versa. So the losses of one type of asset can be partially offset by the gains of the other. In finance speak, we say that there is little correlation between stocks and bonds.

Combining stocks and bonds in a portfolio

The ratio between stocks and bonds in a portfolio is used as a knob to change the degree to which the portfolio fluctuates. When more stocks are added at the expense of bonds, the portfolio becomes riskier. But as a consequence, you get a higher expected return over the long term. Conversely, replacing some stocks with bonds makes your portfolio less volatile, but also lowers its expected return.

Choice of indexes

When choosing the indexes, most importance is attributed to:

  • simplicity
  • diversification across countries and regions
  • diversification across sectors and industries
  • weighting by market capitalisation
  • exclusion of companies that are destructive to the planet

Stock indexes

Two stock indexes were chosen:

  • FTSE Developed All Cap Choice index. The index is based on the FTSE Developed All Cap index and includes 4,776 companies across 26 countries that are considered "developed" markets (US, Japan, UK, Canada, Germany…). It excludes companies involved in non-renewable energies, vice products and weapons.
  • FTSE Emerging All Cap Choice index. Similarly, this index is based on the FTSE Emerging All Cap index. It consists of 2,728 companies of all sizes from the 24 countries designated as "emerging" markets by FTSE. These countries include China, Taiwan, India and Brazil amongst others. It also excludes companies that are involved in non-renewable energies, vice products and weapons.

The combination of the two indexes represents 7,504 companies that are spread across 40 countries.

Bond indexes

The role of the bonds in Curvo's portfolios is to act as a stabiliser through government bonds, and as a diversifier through corporate bonds.

Three bond indexes were selected:

  • Bloomberg Barclays EUR Non-Government Float Adjusted Bond index. The index consists of Euro-denominated corporate bonds from companies that meet the United Nations Global Compact (UNGC) principles. Furthermore, it excludes bonds issued by companies that are involved in controversial weapons or tobacco products.
  • FTSE EMU Government Bond index. The index is composed of government bonds from 9 selected countries in the European Monetary Union: France, Italy, Germany, Spain, Belgium, the Netherlands, Austria, Ireland and Finland.
  • Bloomberg Barclays Euro Government Inflation-Linked Bond index. Inflation-linked government bonds are a special type of bond that protects against rising inflation. In Europe, only 4 European countries issue these bonds: France, Italy, Germany and Spain.

Choice of funds

Once the indexes have been chosen, funds that implement them must be found. Several criteria guide the selection:

  • Price. Fund providers charge an annual fee for managing the fund. Naturally, the lower the better!
  • Taxes. There are several taxes involved when investing. Funds that lower taxes for you are chosen.
  • Distribution of dividends. The portfolios are composed solely of accumulating funds because they're tax-advantageous to the Belgian investor when adopting a buy-and-hold strategy.
  • Assets under management. Larger funds are less likely to be shut down.
  • Replication. Funds that synthetically replicate their assets expose you to counterparty risk. Therefore, only physically replicated funds were selected.

On this basis, the following funds were picked:

Index
Fund provider
Total expense ratio (TER)
ISIN
FTSE Developed All Cap Choice
Vanguard
0.20%
FTSE Emerging All Cap Choice
Vanguard
0.25%
Bloomberg Barclays EUR Non-Government Float Adjusted Bond
Vanguard
0.16%
FTSE EMU Government Bond
iShares (BlackRock)
0.13%
Bloomberg Barclays Euro Government Inflation-Linked Bond
iShares (BlackRock)
0.13%
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Portfolios

Whatever type of investor you are, there's a portfolio for you.

There are five different portfolios, each matching a different type of investor. They go in order of most risky (but highest expected return) to least risky:

Growth

Index
Fund ISIN
Ratio
FTSE Developed All Cap Choice
80.0%
FTSE Emerging All Cap Choice
20.0%

Energetic

Index
Fund ISIN
Ratio
Bloomberg Barclays EUR Non-Government Float Adjusted Bond
12.0%
FTSE EMU Government Bond
14.4%
Bloomberg Barclays Euro Government Inflation-Linked Bond
3.6%
FTSE Developed All Cap Choice
56.0%
FTSE Emerging All Cap Choice
14.0%

Smooth

Index
Fund ISIN
Ratio
Bloomberg Barclays EUR Non-Government Float Adjusted Bond
20.0%
FTSE EMU Government Bond
24.0%
Bloomberg Barclays Euro Government Inflation-Linked Bond
6.0%
FTSE Developed All Cap Choice
40.0%
FTSE Emerging All Cap Choice
10.0%

Calm

Index
Fund ISIN
Ratio
Bloomberg Barclays EUR Non-Government Float Adjusted Bond
28.0%
FTSE EMU Government Bond
33.6%
Bloomberg Barclays Euro Government Inflation-Linked Bond
8.4%
FTSE Developed All Cap Choice
24.0%
FTSE Emerging All Cap Choice
6.0%

Protective

Index
Fund ISIN
Ratio
Bloomberg Barclays EUR Non-Government Float Adjusted Bond
34.0%
FTSE EMU Government Bond
40.8%
Bloomberg Barclays Euro Government Inflation-Linked Bond
10.2%
FTSE Developed All Cap Choice
12.0%
FTSE Emerging All Cap Choice
3.0%
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Portfolio analysis

How your portfolios are built.

Quantifying risk

When investing, the trade-off between risk and return is inevitable. Each of the portfolios exhibits a different risk behaviour. For instance, Curvo Growth has a higher expected return, but this comes at a higher risk. This is taken into account when matching you with the right portfolio.

As we've seen above, a higher risk translates to greater fluctuations. How can this volatility be analyzed? One way is by looking at the maximum drop in value that a portfolio may suffer in any given year.

By studying the past, we get an idea of a portfolio's future behaviour. In the graph below, we display the maximum annual loss that the portfolios may exhibit. Because the future is uncertain, we have to assume a certain range of confidence. As an example, for most years, Curvo Smooth will never drop more than 6.8%.

If you want to learn more on this analysis, we dig deeper into our calculations on Backtest.

Expected maximum annual loss of the Curvo portfolios
Expected maximum annual loss (95% confidence) based on the Capital Asset Pricing Model (from Backtest)

Minimum investment periods

In the previous section, we saw that riskier portfolios may suffer greater losses. Because of this, more volatile portfolios require a longer investment time to increase the odds of a positive return. We deduced the time that one should be invested for each of the portfolios:

  • Curvo Protective: at least 5 years
  • Curvo Calm: at least 5 years
  • Curvo Smooth: at least 7 years
  • Curvo Energetic: at least 9 years
  • Curvo Growth: at least 12 years

Forecasts

Below, we estimated the future performance for each portfolio. These forecasts are calculated using historical data of the period between 2006 and 2021. Furthermore:

  • The simulations assume a €200 monthly investment for a duration of 30 years. This comes down to a total of €52,800 invested over the simulation period.
  • The simulations take into account the 1% Curvo fee.
  • The portfolios are rebalanced whenever one of the assets is out of balance by 5%.

Because of the uncertainty of the future, we mapped out five scenarios for each portfolio: great, good, average, bad and very bad.

Curvo Protective

Curvo protective scenario from Backtest
Forecast for the Curvo Protective portfolio based on historical data, assuming a monthly €200 investment (from Backtest)

Curvo Calm

Curvo calm predicted returned based on Backtest's historical data
Forecast for the Curvo Calm portfolio based on historical data, assuming a monthly €200 investment (from Backtest)

Curvo Smooth

Curvo smooth forecast based from historical performance. Data is gathered from Backtest
Forecast for the Curvo Smooth portfolio based on historical data, assuming a monthly €200 investment (from Backtest)

Curvo Energetic

Curvo Energetic historical return based on Backtest data
Forecast for the Curvo Energetic portfolio based on historical data, assuming a monthly €200 investment (from Backtest)

Curvo Growth

Curvo growth's predicted return based on historical data from Backtest
Forecast for the Curvo Growth portfolio based on historical data, assuming a monthly €200 investment (from Backtest)

Comparison

In the table, we compared the outcome of the forecasts after 30 years. To improve readability, the amounts have been rounded to the nearest thousand.

Portfolio
Very bad
Bad
Average
Good
Great
Protective
€99,000
€113,000
€127,000
€144,000
€164,000
Calm
€100,000
€119,000
€143,000
€169,000
€205,000
Smooth
€100,000
€127,000
€160,000
€208,000
€273,000
Energetic
€99,000
€136,000
€186,000
€251,000
€371,000
Growth
€89,000
€147,000
€226,000
€365,000
€618,000

How the forecasts are calculated

It's often said that past performance is not a guarantee for future performance. This is entirely true. However, it is an indicator for future performance. And using statistics, we can say how likely a certain outcome will be.

We used Monte-Carlo simulations to generate the forecasts above. With this technique, we generated 600 unique scenarios for each portfolio. This provides us with a statistical basis of the distribution of the possible returns. From this analysis, we extract the five scenarios above: great, good, average, bad and very bad.

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Monitoring

The task of managing your investments is done by NNEK and is an ongoing process.

Rebalancing

The portfolios are monitored on a weekly basis to see whether they're still in line with the intended asset allocation. It's rebalanced when any of the assets is 5% out of balance.

Monitoring of the funds

The funds in the portfolios are regularly monitored and reviewed. A fund may be replaced with a better or cheaper alternative.

Furthermore, each fund must always meet sustainability criteria. This means that a fund whose sustainability standards are not up to the criteria may be replaced.

In line with your objectives and situation

Every year, it is made sure that your portfolio is still aligned to your needs and financial goals. Through the app, you are also able to notify us if your life situation changes: job promotion, purchase of a house, children, etc... Your portfolio will be adapted accordingly. 

Investor lifecycle

As you get older and get closer to reaching your financial goals (for instance, retirement), the risk level of your portfolio needs to be adjusted. This will be a constant process throughout your journey.

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Questions

Who manages my investments?

Your investments are managed by our partner NNEK. They've been around since 1986, growing their customers' wealth in the Netherlands, and are licensed as an investment firm by the AFM, the Dutch financial regulator. They are also authorised by the FSMA (Belgian regulator) to launch Curvo in Belgium through the passport of their license.

Can I choose what I invest in?

Not through Curvo. Your investments will be taken care of following the principles that we laid out above.

If you want to actively choose what to invest in, we recommend you open an account with a broker.

How safe is my money?

Safety is vital. We recommend that you read more about how the safety of your assets is ensured.

Can I keep track of my investments?

You sure can. You have 24/7 access via Curvo’s app.

How much does it cost?

It costs a 1% annual fee. Check out the details.

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References

[1] "Equities remain the best long-run financial investment ahead of bonds and bills. Over the last 120 years, global equities have provided an annualized real (i.e., after inflation) return of 5.2% versus 2.0% for bonds and 0.8% for bills." (www.credit-suisse.com)

Home screen of the Curvo app

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