Fidelity Go, the firm’s robo-advisor for retail clients, has replaced Vanguard as the top-performing robo based on two-year trailing returns through September 30, 2018, according to The Robo Report, Third Quarter 2018, by Backend Benchmarking.
Up until the third quarter, Fidelity Go, which debuted in July 2016, was not around long enough to have two years’ worth of investment returns. Vanguard placed second in the annualized ranking for two-year trailing returns followed by E-Trade.
The performance ratings are based on returns of taxable accounts split 60/40 stocks and bonds held by investors in high tax brackets. For balanced portfolios in taxable accounts with different equity and bond allocations, The Robo Report “normalizes” performance in order to reduce the inherent advantage of portfolios whose equity allocations topped 60%; rankings are based on the portfolio returns above or below the normalized benchmark.
Using this methodology, Fidelity Go led other robo-advisors for total portfolio returns over the two years ended September 30, returning 0.15% above the benchmark, while Vanguard lost 0.04% and E-Trade, in third place, lost 0.44%.
Fidelity Go led in the performance of its equity portfolio, which returned 15.75% annually over the two years ended September 30. Large holdings of large-cap stocks and a low allocation to international securities (compared to other robos) coupled with no-fee mutual funds helped buoy performance, said David Goldstone, research analyst at Backend Benchmarking.
Schwab led in fixed income performance, gaining 1.45% annually over the two years ended September 30 when many robo-advisors lost money in bonds. Heavier high yield and international bond exposure underpinned Schwab’s fixed income performance, said Goldstone, noting that those same allocations are hurting performance year-to-date and for the third quarter.
The Robo Report is based on accounts that BackendBenchmarking opened with multiple robo-advisors using its own funds, which it monitors for performance. It also highlights the latest developments in the robo-advisory space including improvements to existing offerings as well as closings and openings.
During the third quarter Capital One shut down its robo advice service following the sale of its investment advice and brokerage assets. Hedgeable completed the closure of its robo-advisory and UBS announced it would be close its SmartWealth, its UK-based robo offering just months after it introduced, in partnership with SigFig, a robo-advisory service in the U.S., called Advice Advantage. Goldstone is curious about that juxtaposition.
The third quarter also included the expansion of some robo-offerings and signals of more to come.
Principal Financial Group completed its acquisition of Robust Wealth, which includes among its white label solutions a digital advice platform. LPL Financial integrated Riskalyze into its Client Works platform and Chinese private equity firm GSR Capital signed a letter of intent to invest as much as $270 million in blockchain startup tZero, the robo-advisor subsidiary of Overstock.com.
(Related: UBS Launches Robo-Advice Platform)
tZero, by the way, blew away all its competitors for third quarter performance. It gained 4.27% above the benchmark, when most robos weren’t even 1% higher and many fell below the benchmark. Its equity portfolio, heavily weighted toward large cap, returned over 11.6% while its fixed income portfolio gained 0.91%.
Unlike other robos, tZero invests in individual stocks of U.S. companies rather than ETFs. Its minimal holdings in international equities and investments in U.S. healthcare and technology companies underpinned its outperformance, said Goldstone. He’s “excited to see” how the tZero handled the volatility in the fourth quarter.
Also during the third quarter, JPMorgan introduced an investing app for self-directed investors and announced a digital advice offering would follow in early 2019.
As competition heats up in the digital advisory space, existing robos are adding new features to their offerings.
During the third quarter Personal Capital debuted a “Retirement Paycheck, which advises investors about account withdrawals in order to minimize tax consequences. Betterment introduced Financial Advice Packages to provide digital-only clients human financial advice for special needs without upgrading to the Premium Plan and it added Smart Saver, a low-risk portfolio to take advantage of rising interest rates.
WiseBayan added features to encourage more contributions by investors, including a round-up feature similar to Acorns and an automated transfer triggered by a decline in portfolio’s value.
United Income added the ability for investors to view their total wealth return, net of investment fees, tax considerations and other factors.
The Robo Report notes that “advances in artificial intelligence combined with digital advice expanding well beyond portfolio management” creates the possibility that a single product could automate multiple personal finance decisions about investing, budgeting, savings, insurance and more.