Thanks to market volatility, all 28 taxable “robo advisors” tracked by BackEnd Benchmarking were in the red for the first quarter of 2018, according to the firm’s seventh edition of The Robo Report.
SoFi Wealth led the robos in total portfolio return for Q1 2018, with losses of only 0.14 percent, followed by Schwab Intelligent Portfolio Products, down 0.33 percent, and TIAA Personal Portfolio’s Socially Responsible Investing product, a newcomer in the report that saw negative returns of 0.45 percent for the quarter. The worst performing robo was Acorns, off 1.55 percent for the quarter. That follows a 2017 performance hampered by poorly timed allocation shifts, according to researchers. (See full chart below.)
Zooming out to their one-year trailing performance, TD Ameritrade Selective and Essential Portfolios produced the best total portfolio returns, with 10.64 percent gains, trailed by SigFig and Schwab, coming in at 10.02 percent and 9.96 percent gains, respectively. Among robos with one year of researched returns, Acorns again had the worst performance, with positive returns of 6.93 percent.
The latest report continues to expand as more companies roll out software-dependent investing products. Additions to the report this quarter included three SRI portfolios, sometimes referred to as “Impact Investing” portfolios, and offerings from Morgan Stanley, Wells Fargo, USAA, United Income, and Capital One. Of those, United Income received a five-star rating for its “high level of account customization, and access to live advisors,” said researchers, who moved past the comparatively onerous onboarding questionnaire and focused on the nuanced financial advice provided.
Among retirement accounts, T. Rowe Price IRA had the highest total returns for Q1 2018, with gains of 0.77 percent, followed by SoFi IRA and United Income IRA, seeing positive returns of 0.49 percent and 0.39 percent, respectively.
The active-strategy funds held by T. Rowe Price, which only supports IRAs, and United Income helped nudge up returns, said researchers. On the other hand, Hedgeable’s IRA saw the worst returns of -1.43 percent due to a high fixed income allocation, noted the report, despite their algorithmic-based active equity strategy.
SigFig IRA had the best one-year trailing returns among the 10 products that have been tracked for that long, seeing gains of 14.19 percent. WiseBanyan IRA was up 13.82 percent and E*Trade ETF IRA was up 13.43 percent for the same period. Personal Capital IRA had the lowest returns of the group, up 11.05 percent.
While the actively managed portfolios may have outperformed during a quarter of high market volatility, investors should be cautious about seeing a sustainable trend there, warns Timothy Welsh, the founder of wealth management consulting firm Nexus Strategy. “Robo advisors are a long-term investing play,” he noted. “Any active manager out there will have their day in the sun.”
The report noted an unveiling of new “impact” portfolios over the past year, like Ellevest’s new portfolio, focused on investments positively impacting women and a movement toward hybrid advice, where platforms combine tech-guided investing with human-provided advising. Meanwhile, both legacy institutions and startups continue to diversify. Robo startup Wealthsimple is now offering savings accounts and JP Morgan Chase and Goldman Sachs are expected to launch new robo products soon.
Also of note was a shift in allocations for the quarter among several robo portfolios. Generally, robos decreased domestic equity holdings and increased holdings in international stocks. Portfolios for E*Trade, TIAA’s SRI, SoFi’s IRA, Merrill Edge, and T. Rowe Price IRA all increased international exposure, according to the report. Notably, Hedgeable’s IRA product increased its fixed income mix by 30 percentage points, to 34 percent of the portfolio.
BackEnd Benchmarking collected data by opening, funding and observing robo portfolios. Taxable accounts are split between approximately 60 percent equities and 40 percent bonds, while IRAs are charted using the highest equity allocation available. The report has been criticized by some for focusing on performance, and one of the original robos, Wealthfront, no longer gives researchers access to its accounts, citing a disagreement with their methodology.