Robo Advisor Retirement Account Performance Fall 2020

Posted on November 20, 2020

Overview:

Saving for retirement is one of the most critical and personal objectives for investors. In The Robo Report, we try to make this process easier by providing transparency on retirement robo advisors. This article will primarily take a particular look at three standout robos whose performance has been stellar over the last three years: SoFi, T. Rowe Price, and Fidelity Go

Long-term Results By the Numbers:

The IRA portfolios tracked are all aggressive, but still, vary in how much each portfolio allocates to equity. Our analysis gives multiple tools for better comparative analysis of portfolios with different equity allocations. Each account is compared to its own Normalized Benchmark, a custom benchmark designed to match each robo’s equity allocation. We also provide the equity-only and fixed-income only performance of the accounts. The analysis in this article focuses on equity and fixed-income only returns. 

For the 3-year period, SoFi came out on top, followed by Fidelity Go and T. Rowe Price. Over the 2-year period, the same three robos were in the top spots but T. Rowe Price came in second and Fidelity Go in third place. 

source: The Q3 Robo Report

Top Performer’s Portfolios:

SoFi’s performance was propelled by an overweight allocation to U.S. large-cap stocks. In particular, it holds over 60% of its portfolio in SFY, a proprietary ETF comprised of the 500 largest U.S. companies, that are then weighted based on growth factors. Large-cap growth companies have been some of the best-performing companies over the last few years, as U.S. technology companies make up a big part of this group. Additionally, SoFi avoided being overweight in international stocks which fared well for SoFi. Lastly, its allocation to growth stocks has been a tremendous benefit when compared to those robos that have a more neutral or value tilted approach.

Fidelity Go has had a similar recipe for success. With over 50% of its allocation in FDFIX, a mutual fund holding the 500 largest U.S. companies, Fidelity Go has done well by keeping its strategy simple. Unlike SoFi, however, the current portfolio is more balanced across the growth-value spectrum which may help investors if value stocks begin to find their way back into favor. Lastly, Fidelity Go has two-thirds of its equity exposure in domestic equities. And its approach to staying primarily in large-caps has driven the portfolio’s outperformance. 

T. Rowe Price is a slightly different story. T. Rowe is known for its active mutual fund approach. In its robo account, it currently holds 6 funds with a four-star rating from Morningstar. Whereas Fidelity Go, for example, focuses on a low total-cost way to invest, T. Rowe Price is focused on active performance. It also participated in similar trends of focusing on large-cap stocks and close to 60% of its portfolio is allocated to domestic stocks. 

A Look at Schwab:

Our Schwab IRA account has not performed well. It has finished last in all categories due to a few strategic decisions by the robo. First, it continues to hold a large percentage of cash (close to 7% in our IRA account). This has been a problem because markets have performed well in recent years. Second, Schwab’s portfolio holds considerably more small and mid-caps, which could be poised for a rebound (compared to large-cap stocks), but that has not materialized yet. Lastly, Schwab has substantially more in value and core styles instead of growth. These decisions look poor in hindsight but could have been seen as reasonable selections a few years back. 

Wealthsimple’s Unique Portfolio:

One robo that we continue to monitor closely is Wealthsimple. Wealthsimple has had a stellar performance record in the taxable space and is starting to make a splash with its IRA portfolio. From a year-to-date perspective, when compared against the normalized benchmark, Wealthsimple finished third, behind SoFi and T. Rowe Price. Wealthsimple’s portfolio is quite unconventional, however. It holds the majority of its equity allocation in international or global funds. Furthermore, over 55% of its total portfolio is in the iShares minimum volatility suite, which is a methodology that weights stocks based on their low volatility and low correlation attributes. Although it has fared well recently, it has yet to be seen how favoring this factor will work long-term. 

Final Thoughts:

SoFi, T. Rowe Price, and Fidelity Go continue to thrive as top performers. Fidelity Go, in particular, may serve the younger generation especially well with its new Spire app which educates the user while investing. T. Rowe Price fits well for those seeking a digital platform with an active approach amongst the primarily passive approach of most other providers. SoFi has been the biggest standout performer and is a great choice for those who want a strong growth tilt to capitalize on the U.S. tech sector’s recent performance. 

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