Robo-advisors performance pretty much mirrored the performance of the overall market during the first quarter of 2020. It was socially responsible investing and low fees, however, that seemed to make the difference when it came to which robo advisors ended up at the top of the Q1 Robo Report. While that shouldn’t be a surprise to most, the top performer for total portfolio might shock some.
Titan Invest and its actively managed portfolio came out on top. The relative newcomer’s portfolio of around 20 stocks is hedged with a short position in the overall equity market, a “personalized hedge” that’s based on an investor’s personalized risk tolerance. Despite the company’s one percent fee, it managed to place first for best equity portfolio in the first quarter.
Wealthsimple and Wealthsimple SRI followed closely behind in second and third place for the first quarter.
Socially Responsible Investing Moving Up
Is it surprising to anyone that socially responsible investing (SRI) nabbed four of the top nine performance slots in the Robo Report? For the past year, markets have been tilting in the direction of environmental sustainability and younger investors have been moving that way. But it’s more than just market sentiment that is the reason for SRI rewarding investors.
According to David Goldstone, head of research at Backend Benchmarking, which published the Robo Report, SRI portfolios don’t have a value tilt in their equity holdings, which many robo-advisors have. And growth stocks have been outperforming value stocks for the majority of the 11-year bull market: “Over the three year trailing period ending on March 31, there are few notable trends: Large-cap stocks significantly outperformed small-caps, domestic stocks outpaced international and growth performed significantly better than value,” he said in a statement.
Low Fees
According to the Robo Report, “Razor-thin margins and pricing competition will continue among robo advisors, increasing pressure on traditional advice.” And while Titan Invest and their relatively high fee may have taken the top slot in Q1 for 2020, low fees tended to remain important across the robo advisor sector. Over the past three years, SigFig, Fidelity Go and Axos Invest (formerly WiseBanyan), took first, second and third place. All three charge either a low fee or none at all.
The Future
Robo-advisors will only continue to evolve and put pressure on traditional financial planners. In the future, it is expected that robo-advisors will become comprehensive personal financial platforms tha are one stop shops for every part of one’s financial life.
