Which Robo Advisors were Top Performers in 2020?

Posted on February 11, 2021

Robo advisors struggled early on in 2020 but came back strong. However, not all robos had the same returns. Titan Invest, Morgan Stanley Robotics, Morgan Stanley Emerging Consumer, Interactive Advisors (Legg Mason Growth and Income portfolio), Wealthsimple, and SigFig all stood as top-performing robo advisors in 2020.

Market Recap

Despite a difficult year that was defined by COVID-19 and political turmoil, financial markets were resilient. The nationwide rollout of two COVID-19 vaccines, coupled with greater clarity regarding the country’s political climate, calmed market angst.

The major indices had strong returns in the fourth quarter and finished 2020 at or around all-time highs. The S&P 500 Index climbed 12.14% in the fourth quarter, pushing its total gain in 2020 to 18.39%. In the fourth quarter, cyclically oriented sectors, specifically energy and financials, drove the market’s gain. When looking across market caps, small-cap stocks fared substantially better than large-cap stocks in the fourth quarter to finish the year on-par with large-cap stocks. Finally, the long-standing trend of growth stocks outperforming their value stocks reversed this quarter, with value exhibiting its best quarter since 2009.

Robos Finish the Year Strongly After Rough Start

Mirroring the broader market, robo advisors had a tough start to 2020 and then came roaring back. In the fourth quarter alone, the average robo portfolio in our universe returned 15.90% on its equity holdings and 1.44% on its fixed income. 

Looking at the whole year, the average robo returned 14.90% on its equity and 6.30% on its fixed income for an average total return of 12.40%. That is a remarkable number given the volatility and difficulty of the year.

Titan Takes Top Spot for 1-Year Returns, Schwab has a Strong Quarter

Titan Invest, which over the last two Robo Reports has been a top performer over the shorter periods, is once again the top 1-year performer both compared to its Normalized Benchmark and when looking solely at equity performance. Its strategy stands out compared to the typical passive strategies seen at most robos in that it actively holds individual stocks—a strategy that has proven effective.

The portfolio outperformed its benchmark by 27.22% over the year. Its equity holdings returned 44.81% over the period. Some of Titan’s holdings, such as Netflix, Amazon, and Apple, were winners in the COVID economy. On the whole, the portfolio is tilted towards large-cap growth stocks, which as a group did well over the year. Over the fourth quarter, its performance was close to the average equity performance of other robos. 

Other portfolios that previously lagged in performance due to a value tilt were actually among the top performers over the quarter as vaccine hopes pushed up the industries that were hurt most by the pandemic. Schwab, one such portfolio, had the two top-performing equity portfolios over the quarter. The Schwab Domestic Focus portfolio returned 20.48% on its equity holdings, while the standard option returned 19.74%.

Morgan Stanley Has Multiple Top Performers Over the 1-Year Period

Behind Titan, Morgan Stanley filled out the top three spots for total portfolio and equity performance over the 1-year trailing period. Morgan Stanley’s Robotics and Emerging Consumer portfolios placed second and third for both categories, respectively. Morgan Stanley’s Robotics portfolio held several themed ETFs that greatly outperformed the broader market. The most noticeable outperformer was the ARK Innovation ETF (ticker: ARKK), which returned 152.82% over 2020. The ARK ETF contributes to an overall tilt towards growth in the portfolio. While value outperformed growth in the fourth quarter, growth has significantly outperformed value over the 1-year period driven in large part by technology companies that have benefited in an economy that is increasingly working remotely.

Holdings in technology and growth-heavy ETFs drove the equity performance over the period to a solid 29.77%. The Morgan Stanley Emerging Consumer portfolio placed third for total portfolio and equity performance in 2020. With 62% of its equity holdings allocated to foreign companies, it had one of the highest international tilts. While domestic equities outperformed developed and emerging markets, the makeup of the international holdings was heavily tilted to emerging markets, which outperformed developed. 

Furthermore, a China equity ETF bolstered the portfolio’s performance as China helped drive emerging markets broadly. The selection of the Artisan Developing World Fund (APDYX), a highly growth-oriented global fund, also proved to be a strong choice. Both funds returned over 70% in 2020, compared to 18.39% for the S&P 500 Index.

A mix of a passive Barclays Agg ETF and the active Western Core Bond Fund helped the fixed-income side of these two portfolios post above-average returns, in turn helping these portfolios secure a top total performance spot. Both of these funds have significant holdings in Treasury bonds and investment-grade corporates. Treasury bonds performed quite well as investors sought safety in the first half of the year. Corporates, on the other hand, performed poorly as markets initially reacted to the pandemic, but rebounded strongly as the Federal Reserve stepped in to support corporate bond markets, generally ending the year with significant gains.

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