As professional human investors and asset allocators reeled from the Covid-19 pandemic-caused volatility in the first quarter, their robotic competitors also struggled.

The best long-term robo-advisor performers, according to the Robo Report from Martinsville, N.J.-based BackenD Benchmarking, are all well-known incumbents: SigFig, Fidelity Go and Axos Invest.

But over the first quarter alone, Titan Invest was the best-performing robo according to the report, which uses a proprietary “Normalized Benchmark” to attempt to fairly gauge the performance of roboadvisors. Titan Invest portfolios hold all individual equities, and benefitted from a tactical trade into an ETF shorting the S&P 500—so it’s no surprise that it took home top-performer nods for both its total portfolio and its equity allocation. Nevertheless, a taxable portfolio with Titan Invest lost more than 15% of its value in the first quarter.

Wealthsimple was recognized as not only the second-best quarterly performer for its total portfolio, but was also named the top fixed -ncome performer over the period.

Amid the volatility caused by Covid-19, SigFig’s normalized three-year performance in the period ending March 31 was able to overtake Fidelity Go, which dropped to second place after several quarters as the best long-term performer, followed by Axos Invest (which was rebranded from WiseBanyan) in third. The keys to the success of the top three roboadvisor portfolios, according to the report’s authors, were higher allocations to domestic equities and lower fees.

SigFig eked out better performance than its peers by tilting its international equity allocation towards emerging markets, and using total stock market ETFs to build its domestic equities allocation, which have favored high-flying large-cap technology stocks. On an absolute basis, three-year average annualized returns were 2.83% for SigFig, 2.64% for Fidelity Go and 1.85% for Axos Invest.

Axos Invest and Fidelity Go shared honors as the top-performing equity allocations over a trailing three-year period, while Ally Invest Managed Portfolios won recognition as the best-performing fixed-income allocation.

Covid-19 created a new line of differentiation for robo-advisors, according to the report, with some robos with more unique strategies and holdings outperforming BackenD Benchmarking’s Normalized Benchmark. Titan Invest was the best example of this phenomenon. The report’s authors also noted that income-oriented portfolios from Betterment and TD Ameritrade tended to perform well during the downturn.

But some portfolios designed to provide specific kinds of cover to investors performed poorly during the first quarter. For example, the Morgan Stanley Inflation Conscious portfolio experienced a loss of 28.34% in its equity holdings, the worst performance of any robo-advisor in the report, largely due to its investment in a master-limited partnership energy ETF that lost 59% during the quarter. Wells Fargo, on the other hand, offered the worst-performing fixed-income allocation, losing 3.7% in the first quarter due in part to having one-third of its fixed-income assets in high-yield and emerging-market ETFs as the Covid-19 downturn took hold.

The Robo Report’s authors also took aim at the underperformance of one of the U.S.’s largest robo-advisors. In a taxable, moderately aggressive portfolio, Schwab’s Intelligent Portfolios robo-advisor delivered first-quarter returns of minus 17%, also lagging most of its peers on a one-, two- and three-year trailing annualized basis. In fact, it was the only portfolio with three-year annualized returns of less than 0%.

This quarter, the authors attributed Schwab’s underperformance to the amount of cash it holds in client portfolios.

“Among all the robo advisors we track, Schwab holds the most cash as a percentage of the total portfolio,” wrote the report’s authors. “This may have helped since part of the portfolio was not in equities, but it also can hurt if an investor could otherwise be in investment grade fixed income, specifically treasuries, which do well during tough times. The cash is not only a drag on performance during bull markets, but we are also seeing it as a drag in bear markets compared to other robos who have used this part of the portfolio to invest in high-quality, longer duration fixed income. “

According to the report, robo-advisors are experiencing many of same industry trend issues as traditional asset managers and wealth managers. New entrants and evolving incumbents are causing more fee pressure in the industry, and many firms are seeking to expand beyond providing digital asset allocation and rebalancing.

“In the past year, checking and savings products have been a popular feature implemented by roboadvisors,” according to the report. “Schwab introduced its new Intelligent Income tool, which helps provide a smart, tax-efficient strategy to help users tackle spending during retirement.”

Portfolios concentrated on ESG factors and socially responsible screens posted strong returns during the first quarter. Standouts included the Wealthsimple SRI portfolio, which was the top ESG performer during the one-year period ending on March 31. The Morgan Stanley SRI portfolio was the second-best ESG performer.

Most robo-advisory SRI and ESG portfolios outperformed corresponding non-SRI and non-ESG portfolios from the same company on a net-of-fees basis during the first quarter and one- and two-year trailing time periods ending on March 31.

“This suggests that investors are not paying a significant performance premium when opting for SRI portfolios,” the report said.

The downturn also provided an opportunity for robo-advisors to earn some of their value through tax-loss harvesting, but the results varied between different providers.

Vanguard remains a leader in digital advice, with its Personal Advisor Services accounting for $140 billion in assets under management, making it the largest robo-advisor in the world. And the launch of its new Vanguard Digital Advisor service could win more market share for the discount investing behemoth. Digital Advisor offers investment management at 0.20% in annual fees for accounts with a $3,000 minimum.

“This new, lower-minimum and lower-cost product represents a wider trend of large financial institutions expanding to new segments of the market and engaging with customers earlier in the client lifecycle,” the report said.
Goldman Sachs also earned mention in the report as making great strides to catch up to its competitors in building a tiered service to encompass more down-market clientele, particularly via its recent acquisition and rebranding of United Capital. The report’s authors expect Goldman to soon launch its own digital-advice product.

In the meantime, the hybridization trend—digital advisors working in tandem with some sort of human advisory service—continues from both directions as more human advisors deploy robo-like client-facing technology, and more robo-advisors add on or affiliate themselves with a human-advice offering.

More firms are also looking to offer investors fractional shares, wrote the report’s authors, which should eventually broaden the availability of direct indexing.

“We do not expect direct indexing to have significant impacts on the investment management market in the near- or mid-term, but it may have profound impacts on the fund industry in the long-term,” they wrote.

The Robo Report tracks the performance of 41 digital-advice providers, sometimes called robo-advisors, across 66 taxable accounts and 20 IRA accounts. The Normalized Benchmark adjusts for each robo-advisor portfolio’s unique underlying allocation and compares that portfolio to a benchmark with the same allocation.