Composer: An Investment Platform For The Future

With heightened stock market volatility, more investors are looking for ways to hedge their portfolios or find some way to outperform the broader indices. Therefore, I thought it would be a good idea to interview Ananda Aisola, the co-founder of Composer, a new investment platform.

For 13 years I worked in the equities department at two major investment banks. And since 2001, I've lived in San Francisco, the tech startup capital of the world. Hence, whenever there is an equities-related startup, I'm intrigued!

Equities account for roughly 30 percent of my net worth. Of the 30 percent, roughly 75 percent is invested in index funds. The remaining 25 percent is invested mostly in individual stocks.

First, a brief overview of Composer, a Financial Samurai sponsor. We'll then go through a Q&A with its co-founder, and then I'll end with Composer's equity outlook over the next 12-24 months.

Composer Company Overview

Composer was founded in April 2020, right at the start of COVID. It currently has 13 people across Toronto and America. Composer is SEC registered as an RIA and the US is the only market where people can use their product at present.

The company has raised just over $11M to date. Investors include First Round Capital, Left Lane, AVG Basecamp, Not Boring and other investors.

Their customers are generally between ages 25-35, financially savvy, with previous investment experience. They tend to be part of the mass affluent demographic who are seeking financial independence to be able to pursue the life they want. 

The company has a long product roadmap ahead of us that includes retirement accounts, dynamic screening, crypto and other enhancements to the core product. Finally, Composer has continued to grow both in terms of users and assets since the beginning of the pandemic.

Interview With Composer Co-Founder, Ananda Aisola 

And now for some Q&A with Composer's co-founder.

1. Given the difficulty of outperforming an index like the S&P 500 over time, how does Composer expect to outperform? Or is outperforming not the primary objective?

Our primary objective is to help investors build better portfolios and that means different things for different investors. For investors that want to outperform the S&P 500, Composer can help them intelligently take on more risk with leveraged ETFs or take advantage of well documented market anomalies. 

Most of our levered strategies have a hedging component that is determined by a Risk On/Risk Off condition. An example is this Risk Parity strategy that is designed for a rising interest rate environment.

We also have an Inflation Hedge symphony as well as a Commodity Momentum one. We typically recommend pairing these with a more traditional symphony as their value is in portfolio diversification. 

Other investors may want to outperform the S&P 500 on a risk-adjusted basis. Composer provides diversifying strategies like commodities, trend-following, and tactical asset allocation We believe that through systematic investing investors can achieve better sharpe ratio/returns than if they had just invested in an index.

We built a beautiful drag-and-drop portfolio builder that lets you invest in existing or design your own rules-based strategies in a snap, without the messy code and spreadsheets. Once you invest, Composer will monitor, rebalance, and execute trades automatically.

2. Share with us how Composer can help investors gain more confidence investing in a bear market? 

Two things that are important for investors in bear markets are diversification and avoiding emotional decisions.  

First, Composer helps investors diversify by serving up many different types of strategies. Each strategy provides data to compare strategies to equity and bond markets to see diversification benefits.

Second, Composer can help investors avoid emotional decisions by creating clear rules to make portfolio decisions; systematically reduce volatility and drawdowns through symphonies e.g., trend following.

After a 12 year bull run, the market is changing. Investing in the face of inflation and economic uncertainty requires more than a simple “buy-and-hold” strategy.

We believe investors deserve a smarter option that responds to market movements without the endless hours of research, screen time and manual trading.

For decades, some hedge funds have used quantitative trading to help them generate strong returns. Finally, that same technology is available to retail investors with Composer.

3. What are some of the most popular investment strategies that have outperformed historically? How does Composer come up with these “symphonies”?

We source ideas from academic research, renown investors, and the creativity of our members. We believe investing should be a fun and creative endeavor. As a result, we’ve built our platform to make the process of taking an idea from concept to execution easier than ever before. 

All symphonies go through a rigorous screening process before they go on our Discover page, where we assign risk profiles to each.

Some strategies that have performed well in different markets:

1. Big Tech Momentum & Commodity Momentum
2. Dynamic Income & Safety in Sin Stocks 
3. On a risk-adjusted basis: Hedgefundie’s Excellent Adventure Refined & Low Vol Risk Parity 

Composer…symphony…get it?! We’ll help you make your portfolio a…masterpiece. (sorry).

4. How does Composer make money?

We charge a monthly fee of $30 dollars, with a minimum of $500 to start investing. The $30 fee stays the same whether you have $500 or $200,000 invested with us. This is unlike the private hedge fund model, which tends to charge 2% of assets under management and 20% of profits above a certain threshold.

Traditionally, access to this type of investing required a professional knowledge of Python, financial modeling, and expensive trading software. However, creating an account to backtest and edit existing symphonies is completely free. 

Below gives you an idea of how a user can backtest the performance of a popular symphony called Hedgefundie, using different variables.

6. Where is my cash and securities held when I invest with Composer? Is there a custodial bank you use?

Composer is not a custodian. Assets are held with our brokerage partner Alpaca who is FDIC insured and they use BMO Harris Bank and SVB Bank to custody assets.

7. What are the backgrounds of the founders?

Before Composer, CEO Ben Rollert was VP of Product and Data Science at Breather, a work space as a service company. Ben has been an active trader and investor since he was a teenager. He founded Composer in response to his own frustration with the difficulty of implementing automated trading strategies.

While at Breather, he worked with CTO Ronny Li who is a wizard at data science, engineering, analytics, and web development from his time at Shopify, Breather, and Hopper. Ben’s former classmate at McGill, COO Ananda Aisola left behind a life of investment banking to run operations at ​​Ritual, a late stage food delivery company.

Composer Investment Outlook

Here is Composer's investment outlook over the next one-to-two years.

• Stock and bond correlations will look materially different over the next 12-24 months than they did over the last decade. Inflation uncertainty will increase correlations and decrease the diversification benefits investors previously enjoyed.

• We are evaluating other asset classes to improve diversification and manage volatility. In particular, we are looking at USD ETFs, managed futures, gold, and commodity trend.

• Within equities we think value looks attractive on a relative basis; further, we like large-caps relative to small-caps given the risks of a recession in the next 12-24 months.

• We are expecting continued dispersion in sector returns and we prefer strategies like Sector Momentum which have the potential to outperform a broad market portfolio

What is Composer watching and evaluating?

• Inflation – How long will inflation run above trend? Do long-term inflation expectations begin to lift? How high and for how long for the Fed?

• Housing – Downturns in the housing market often precede economic activity.

• Labor market – How will continued quantitative tightening impact a labor market that has been resilient so far?

In general, we think the next 12-24 months have a wide range of possible outcomes. In the face of this uncertainty, investors are best served balancing risk across asset classes vs. taking a directional view on the market.

How To Sign Up With Composer

Anybody can invest with Composer. People who are comfortable creating their own strategies or modifying existing ones are free to do so. Others can implement strategies off the shelf that have been vetted by our in-house investment committee.

You don't need an account to view the strategies but if you choose to sign up, you will have to answer a set of questions to better demonstrate your goals and risk tolerance similar to a robo-advisor.

Sign up here and explore for yourself what Composer has to offer.

Venture Capital Investing Alternative

In addition, one of the most interesting funds I'm allocating new capital toward is the Innovation Fund. The Innovation fund invests in:

• Artificial Intelligence & Machine Learning
• Modern Data Infrastructure
• Development Operations (DevOps)
• Financial Technology (FinTech)
• Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. The investment minimum is also only $10, as Fundrise has democratized access to venture capital as well. Most venture capital funds have a $200,000+ minimum.