Best Active Robo Advisor Performance: Q3 2019

Through the end of the third quarter of 2019, the active robo portfolios we track have shown some early signs of outperformance when compared to the passive offerings from the same providers. Over the first three quarters of 2019, our active portfolios at E*Trade, Morgan Stanley, and TIAA returned 13.42%, on average. The standard offerings from the same providers returned 12.55% over the same period. For the two providers at which our active portfolios have a year of performance—Morgan Stanley and TIAA—the active options have slightly outperformed standard offerings. One factor driving this outperformance is that many of our active portfolios have a tilt towards growth stocks that have outperformed value stocks in the first three quarters of 2019.

*Our Betterment Active portfolio only has third quarter performance
**Our E*Trade Active portfolio only has third quarter and YTD performance

Management fees and account minimums of active portfolios remain the same, but the expenses on the underlying holdings typically increase. Expense ratios increased an average of 0.26% across our four active portfolios when compared to their passive peers. Morgan Stanley, TIAA and Betterment all had more expensive funds in their active portfolios, increasing their expense ratios from 0.11% to 0.63%. E*Trade was the only exception. Its active portfolio had a weighted average expense ratio of 0.09% versus 0.10% for the passive offering. 

Despite higher expense ratios, the active portfolios have performed better on average in the first three quarters of 2019. TIAA’s active portfolio had the greatest outperformance, returning 1.61% higher than its passive counterpart. Although this outperformance is due largely to a heavier allocation toward equity in the portfolio as a whole, a more apples-to-apples comparison of the equities in the two portfolios shows that the active portfolio’s equities outperformed those in the passive portfolio by 2%. Morgan Stanley’s active portfolio outperformed by 0.91% in the first three quarters, driven largely by a heavier allocation to growth stocks. E*Trade was the exception, with its active portfolio underperforming its passive one by 1.12%. Our Betterment Active Beta portfolio only has one quarter of performance. During that period, it returned 0.84%, while the standard Betterment portfolio returned 0.50%. 

T. Rowe Price supports only IRAs on their digital advice program and offers an active portfolio only. When compared to the other IRA accounts we hold, T. Rowe posted the best equity performance in the first three quarters of 2019 and from October 2018 to October 2019. T Rowe’s performance was driven in part by its growth and large-cap tilt.

The short-term results of active accounts have been positive. As the age of the active portfolios matures, we will be able to better compare the performance of all the active offerings and see if their performance continues to outweigh their higher fees.