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2016 Best Robo-Advisor Returns – Who’s the Winner?

Having been in the investment markets for decades, I know that one-year returns for any type of investment strategy don’t necessarily tell you a lot. Yet, robo-advisors have something special going for them. Almost every automated investment advisor creates digital portfolios using Modern Portfolio Theory. That means the algorithm strives to create a mix of stock, bond and alternative funds that offer the best returns for your risk comfort or tolerance level.

2016 Best Robo-Advisor Returns - Find out who takes the robo-advisory crown

In plain language, most robo-advisors are structured to create efficient investment portfolios with good, long term, market-matching returns. And, if market matching doesn’t sound great, exhaustive research has shown that it’s extremely difficult to beat the investment market’s returns over the long haul and up to 70% of active fund managers fail to do so.

The companies with the best robo-advisor returns for 2016 span the field. Find out…

Who Are the Robo-Advisors With the Best 2016 Rates of Return?

Condor Capital Wealth Management, of Martinsville, NJ began an experiment last year to answer the question of which robo-advisors have the best returns. They began this quest by funding various robo-advisor accounts for a fictional high tax bracket individual. Each account approximated the same asset allocation: 60% stocks and 40% bonds. Their goal was to find out which robo-advisor offered the best returns for an individual. The firm will follow these accounts over time and report on the best-robo advisor returns periodically.

The investment returns for the first three quarters of 2016 ranged from a low of 5.73% for Vanguard Personal Advisor Services and a high of 10.20% for Schwab’s Intelligent Portfolios.

First Reporting of Best Robo-Advisor Returns

From the time period of January 2016 through September 2016 the top finisher overall was Schwab’s Intelligent Portfolio. The best fixed income finisher was SigFig and the best equity winner was also Schwab’s robo-advisor.

As you’d expect, the winners lined up with the greatest percent invested in the top performing sectors in each asset class during the first three quarters of 2016.

Overall Portfolio Results:

  • Winner: Schwab Intelligent Portfolios
  • 2nd Place: SigFig
  • 3rd Place: Personal Capital

Equity Portfolio Results:

  • Winner: Schwab Intelligent Portfolios
  • 2nd Place: Acorns
  • 3rd Place: Personal Capital

Fixed Income Portfolio Results:

  • Winner: SigFig
  • 2nd Place: Schwab Intelligent Portfolios
  • 3rd Place: Personal Capital

Who Were the Contestants in the Robo-Advisor Return Competition?

For their experiment, Condor Capital opened 12 taxable robo-advisor accounts. In the final data, four accounts weren’t included for contention in the winning portfolios as they were added throughout 2016; E*Trade (ETF), E*Trade (Hybrid), Fidelity Go and FutureAdvisor.

Following are the robo-advisors, their fees, minimum investment amounts and overall portfolio returns, net of fees (or after fees are deducted from returns):

PortfolioFeeInvestment Minimmum2016 Portfolio Returns - January through September
Acorns$1/month up to $5,000; 0.25% annually over $5,000None8.94%
BettermentUp to $10,000-0.35% with min. $100/mo auto deposit or $3/mo without. Above $10,000 fees start at 0.25% annuallyNone6.92%
E*Trade (ETF)0.30% annually$10,000N/A
E*Trade (Hybrid)0.30% annually$10,000N/A
Fidelity Go0.35% annually$5,000N/A
FutureAdvisor0.50% annually$10,000N/A
Personal Capital0.89% annually for first $1M and reduced fees above $1M$25,000 for managed account - none for free investment dashboard9.10%
Schwab Intelligent PortfoliosNone$5,00010.20%
SigFigNo fee up to $10,000; 0.25% over $10,000$2,0009.30%
TradeKing$1/month up to $5,000; 0.25% annually over $5,000$5007.28%
Vanguard Personal Advisor Services0.30% annually $50,0005.73%
WiseBanyanNoneNone7.96%

Select data sourced from Condor Capital Wealth Management

What Caused the Differences in Returns for the Robo-Advisors Portfolios?

Despite the similar 60% stock and 40% bond portfolio asset allocation, the underlying funds within each robo-advisor were distinct. According to a recent CNBC article, “Returns Vary Widely for Robo-Advisors with Similar Risk”, by Tom Anderson.  The Schwab Intelligent Portfolio had approximately 37% of its equity portfolio invested in small and mid-cap stocks. In contrast, Wealthfront had only 23% devoted to the small and mid-cap asset class.

The Condor Capital report explained that US equities and emerging market stocks and bonds were the best class performers during that time. Certain commodities also did well, so portfolios with an allocation to precious metals performed better than those without.

Ken Schapiro, president of Condor Capital elaborated that value and small-cap stocks outperformed in 2016. These types of sector scenarios influence which portfolio will shine during specific periods. The fact that certain sectors perform better during distinct time periods underscores the importance of owning a diversified portfolio.

Outperforming sectors influence which portfolio will shine during specific periods. The fact that certain sectors perform better during distinct time periods underscores the importance of owning a diversified portfolio.

Should I Select a Robo-Advisor Based On Nine Month Returns?

Investors gravitate toward the top performer’s lists. The Wall Street Journal publishes the winners and losers list of stocks every day. CNN Money Magazine recently listed their best performers list of funds. Morningstar is famous for its star ratings. Yet, there is more than performance to picking an investment or a robo-advisor.

After all, performance explains investments returns for historical periods-a day, a month, a quarter, a year etc. Yet, past performance is not a guarantee of future performance. So, if anyone comes up with a guaranteed future performance list, that’s one to follow!

Yet, there are certain factors that help future performance – such as lower fees. Although, some times it’s beneficial to pay higher fees in return for additional services.

Personal Capital’s managed accounts charge 0.89%, yet you have your own personal investment advisor and a multitude of additional services for the fee. The management fee didn’t keep Personal Capital from a third place finish.

So, like any investment decision, mull over all the factors that matter to you before choosing a robo-advisor or an individual investment. It’s also wise to look at the individual funds and percentage allocations within each robo-advisor. Despite the fact that TradeKing Advisors didn’t win the 2016 competition, I like the wide range of available investments offered within their robo-advisor service.

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Barbara A. Friedberg, MBA, MS

Barbara A. Friedberg, MBA, MS

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