Tag: Wealthfront

Posted on June 12, 2020

In the first quarter of 2020, Backend Benchmarking had the opportunity to see how the robo-advice landscape reacted during a major sell-off. From a performance perspective, our Q1 Robo Report noted that our robo accounts generally declined in proportion to their equity percentage, albeit with some interesting exceptions. However, there has been an unexpected surge in new-account openings in robos even in spite of the market decline. 

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Posted on June 4, 2020

Overview:

The robo-advice industry has led the way in changing the financial services industry to benefit the average investor. Robo-advice attributes like accessibility, low cost, and low minimums have dramatically impacted the investment management space and are now branching out to other areas including cash management, banking services, and retirement income solutions. 

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Posted on June 3, 2020

The Emergence and Spread of Robo Advice

Robo advice as we know it today first emerged into the mainstream in 2008 when Betterment and Wealthfront were founded and later launched digitally managed portfolios with low fees and minimums. In 2015, Schwab launched its Schwab Intelligent Portfolios and Vanguard launched its Personal Advisor Services. Since then, robo-advice products have become ubiquitous among financial institutions. Here, we intend to take a look back at the industry, how its evolution is impacting individual investors, and what investors can expect next from these innovative products.

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Posted on May 6, 2020

Wealthfront is Ranked #1 for Digital Financial Planning


Overview: 

Wealthfront was founded in 2008 as kaChing, a mutual fund analysis company, before pivoting into wealth management.  Wealthfront officially launched in December 2011 and has since raised a total of $205M in venture capital to expand operations.  Between its investment management and cash account offerings, Wealthfront is now one of the largest independent robo advisors, with over $13.5 billion in assets under management and an additional $7+ billion in deposits into its high-yield cash account. 

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Posted on March 8, 2020

  • The recent shock from the coronavirus has pushed the down S&P 500 down as much as 27%
  • The drop provided robo advisors with an opportunity to place tax-loss harvesting trades
  • Only a few robo advisors have heavy fixed income allocation to Treasury bonds, one of the few areas of the market that has fared well during the crisis

Note: Many of these portfolios discussed here are the ones we opened for analyzing tax-loss harvesting technology (denoted by TLH in the table). These portfolios are not the same portfolios that are covered in The Robo Report. 

Worries over the economic impact of the Coronavirus have led to unprecedented volatility in global markets. The 11-year bull market has ended and worried over companies’ inability to meet debt payments has hurt corporate bonds. U.S. Treasury bonds have been investors’ only safe bet. However, we encourage investors not to panic and to stick to time-tested portfolio management practices and keep a long-term perspective.

Two weeks ago, Backend Benchmarking published its first analysis of how robo advisors were faring in this event. That analysis can be found here. Since then, markets have dropped further and remained extremely volatile. It has also allowed robos to place more tax-loss harvesting trades.

How Did Robo Advisors Fare? 

We tracked performance from January 1, 2020 to March 16, 2020 on many of our robo advisors. Over that time period, the average portfolio experienced a 17.60% decline. The equity holdings fell 29.16%, on average, while fixed income holdings fell 2.30% on average. 

Amongst our portfolios with a 60-40 target allocation, our Wealthsimple portfolio had the best performance across the board, leading in equity, fixed income, and total portfolio performance. Its fixed income returned 5.83% over the period. This can be attributed to the fact that all the portfolio’s fixed income holdings are investment grade. Further, nearly two-thirds are long-duration U.S. treasury bonds. When the Federal Reserve lowers interest rates, long-duration bonds will increase in price more than shorter duration bonds will. On the equity side, Wealthsimple benefited from its holdings of two international minimum volatility funds. Previously, these funds dampened Wealthsimple’s performance, but in this volatile bear market, they have had the opposite effect. 

While Wealthsimple led across the board, Schwab underperformed; total portfolio performance was -22.55% despite having the largest allocation to cash. Relative to the average robo portfolio, Schwab has a higher exposure to international equities, which have underperformed domestic equities during the crisis. Its fixed-income portfolio has small exposures to high-yield and international fixed income which have not rallied like domestic investment-grade fixed income during this downturn.  It’s fixed income holdings returned -7.44% over the period. 

Fixed income performance was down on average, however. Only 5 portfolios—Wealthsimple, Future Advisor, Morgan Stanley, JP Morgan Chase, and TD Ameritrade—had positive fixed income returns. The common denominator was a heavier allocation to investment-grade corporates and treasuries. 

Also included in our analysis were a few unique strategies, including Betterment’s Income strategy. Our Betterment Income portfolio faired well, only dropping 2.36% over the period analyzed.  This portfolio is a 100% fixed income portfolio and is far more conservative then the other portfolios analyzed. 

Tax Loss Harvesting

At Backend Benchmarking, we have opened accounts at a handful of providers that are specifically designed to allow us to track tax-loss harvesting.  We make monthly deposits into these accounts to create more tax lots to increase the opportunities for tax-loss harvesting. We have these accounts at Betterment, TD Ameritrade, Wells Fargo, Schwab, Axos Invest, Wealthfront, UBS, US Bank, Morgan Stanley, SigFig, and Citizens Bank.  As of the end of the day Tuesday, March 16, most providers had placed tax-loss trades. A few noticeable holdouts were Wells Fargo and UBS, who both had very large unrealized losses worth nearly 25% of the account value. 

The aggressiveness of the trades has also varied. Wealthsimple, Schwab, Axos Invest, and Betterment have stood out for the amount traded and the losses realized relative to the size of their accounts. Schwab and Betterment traded over 60% of their accounts to realize losses. Wealthsimple traded nearly 50%. 

Another of other portfolios have rebalanced their portfolios as the large drop in equity markets has pulled portfolios away from target allocations. 

Performance from 1/1/2020 to 3/16/2020: 

Robo Advisor% EquityEquity PerformanceFixed Income PerformanceTotal Portfolio Performance
Axos Invest TLH58.44-28.2-2.52-18.64
Betterment Income00-2.36-2.36
Betterment Smart Beta56.8-27.98-5.58-19.19
Betterment TLH53.1-30.03-4.23-19.87
E*Trade56.64-30.2-0.86-19.33
Ellevest49.86-29.41-4.43-18.7
Fidelity Go53.77-28.45-2.13-18.21
Future Advisor TLH53.95-29.651.55-17.21
Interactive Brokers45.31-31.03-1.38-17.46
JP Morgan Chase You Invest46.08-29.050.53-14.72
Merrill Edge53.57-28.55-3.79-18.95
Morgan Stanley TLH56.33-30.341.15-19.34
Personal Capital67.04-29.91-2.25-21.9
Schwab TLH58.31-32.8-7.44-22.55
SigFig TLH52.8-28.05-2.35-17.76
SoFi54.45-27.57-2.76-18.03
TD Ameritrade TLH62.12-28.650.11-20.06
UBS TLH67.43-30.12-4.95-22.16
United Income57.95-30.09-1.64-19.77
Vanguard56.79-28.56-1.29-18.88
Wealthfront TLH52.75-28.19-3.51-18.29
Wealthsimple TLH56.87-26.755.83-14.66
Wells Fargo TLH56.8-29.93-5.04-20.65

*All performance is net of fees
**All numbers in the table are percentages

Posted on March 5, 2020

  • The recent shock from the coronavirus has pushed the down S&P 500 down as much as 15%
  • The drop provided robo advisors with an opportunity to place tax-loss harvesting trades
  • Most robos exhibited similar upside and downside capture ratios, with a few exceptions
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