The recent advent of robo-advisors has already has a profound impact in the financial industry, as these automated platforms can offer basic money management services to investors at a fraction of the cost that is usually charged by human advisors. But how have these programs performed during their relatively short life spans? A Registered Investment Advisory (RIA) firm in New Jersey decided to find out the answer by investing some of its own money in them to see what kind of returns they are generating, ThinkAdvisor reports. Here are the results that they have seen so far.
New Jersey-based Condor Capital Management has nearly $850 million in assets under management. This firm decided to research its automated competition by investing in a range of these automated services. It recently published its first quarterly report detailing the performance of these advisors in both taxable and nontaxable accounts after fees have been deducted. The firm chose an allocation of a 60/40 split for the taxable accounts and almost a 100% allocation in stocks for the nontaxable accounts. (For more, see: 9 Top Robo-Advisors for Financial Advisors.)
Ken Schapiro, founder and president of Condor, told ThinkAdvisor, “Robos are a black box. The only way to do this is from back end.” Condor invested in 12 separate robo-advisors with 13 taxable accounts (TradeKing offers two taxable asset allocations, core and momentum). Only nine of the portfolios spanned all three quarters of 2016, as three of them were not added until later. The report also covered six tax-free portfolios for IRAs, although only three of them were covered in the first quarter. By Sept. 30, the firm had over $200,000 invested in the taxable robo portfolios and $45,000 invested in the IRA portfolios.
Condor’s report showed that Charles Schwab’s automated service posted the highest return, coming in at 10.2%. SigFig came in second, up 9.3% and Personal Capital third, up 9.1%. Schwab’s service was also the clear winner in the taxable portfolio that invested only in equities, posting a return of 12.54% over the past three quarters. Acorns came in second at 11.1% and Personal Capital was third at 9.74%. SigFig came in first in the fixed-income category, posting a return of 9.81% through the third quarter, followed by Schwab, 9.35%, and WiseBanyan, 7.55%. All of the portfolios consisted solely of exchange-traded funds (ETFs), except for Schwab, which maintained a cash position of less than 10%. (For more, see: What Financial Advisors Can Learn from Robo-Advisors.)
Condor's report also outlined several of the reasons why the winners came out on top of their competition. Schwab’s equity portfolio won with allocations to gold, emerging markets and domestic small-cap stocks. Meanwhile, an allocation to international bonds provided a boost to its bond portfolio. SigFig’s taxable portfolio got a boost from its allocation to emerging markets and emerging market sovereign debt. The taxable portfolio of Personal Capital benefited from its holdings of Vanguard sector ETFs as well as gold and emerging markets. However, the portfolios of all three robos generated losses from holdings in developed markets and international equities.
Michael Walliser, Condor Capital’s executive vice president for compliance and investment research, told ThinkAdvisor, “We haven’t seen a large amount of trading and rebalancing among different asset classes now. It will be interesting to see what happens after Dec. 31.”
The Bottom Line
Time will tell how well the new boys on the block are able to perform compared to human advisors. Robo platforms can perform basic money management chores, such as portfolio rebalancing and tax-loss harvesting. But they cannot provide more sophisticated services, such as selling the stock options of a corporate executive. (For more, see: Robo-Advisors Face First Market Downturn Test.)