“They’ve done pretty poorly, we think it’s because they made a couple of allocation decisions over the course of the year that have hurt them, including rebalancing away from international and going away from emerging markets in favor of developed markets,” said Goldstone. “Now it looks like their portfolio is coming more in line with the others, but each time they’ve made a move, it’s been at a bad time to do it.”
E*Trade, Fidelity Go, Schwab and WiseBanyan also rebalanced during the third quarter, for the most part selling international holdings and adding fixed income, according to BackEnd.
Fixed-income performance varied greatly within the taxable accounts, but more aggressive bond portfolios tended to win amidst a backdrop of gradually rising interest rates. The biggest winner so far in 2017 is Schwab’s robo-advisor, which posted year-to-date fixed income returns of more than 6 percent. E*Trade’s hybrid service came in a distant second, returning 4.6 percent through the first three quarters, while Fidelity Go posted third-best 4.5 percent year-to-date returns.
“Schwab’s robo-advisor is driven by fixed income,” said Goldstone. “They’re positioned more progressively than others within internationanl and high-yield bonds.”
On a year-over-year basis ending on Sept. 30, 2017, Betterment emerges as the best-performing robo-advisor for taxable accounts, posting 11.97 percent returns, closely followed by Schwab Intelligent Portfolios, which posted 11.93 percent returns. Through the same time period, Schwab also posted the highest Sharpe ratio: 3.29.
In its latest report, BackEnd also introduced measures of upside and downside capture as part of its risk analysis of each robo-advisor. Standouts include SigFig, which captured 98.7 percent of the market’s upside but only 80.9 percent of the market’s downside; Betterment, which captured 107.7 percent of the market’s upside but only 92.2 percent of the market’s downside; and Schwab, which captured 105 percent of the market’s upside but only 76.9 percent of the market’s downside.
Falling behind were services like Acorns, which captured just 84.6 percent of the market’s upside but a whole 153.3 percent of the downside, and FutureAdvisor, which captured 82.8 percent of the upside but exposed its users to 113.1 percent of the downside.
While BackEnd opened up fewer IRA accounts, it found similar disparities in overall performance, with SigFig offering the best returns in an aggressive portfolio through the first three quarters of 2017 at 16.89 percent. The poorest performer in BackEnd’s analysis for the same period was Personal Capital’s IRA, which returned 12.7 percent year-to-date.
Hedgeable’s IRA was notable for the amount of trading within the tax-advantaged account. Because the robo-advisor uses individual equities, it tends to do more work as it rebalances. Over the third quarter, the digital service removed allocations to Kraft Heinz and Comcast, and reduced allocations to Amazon and Alphabet while opening a new position in Intel and adding to its positions in Apple and Cisco.
“Hedgeable has done very well in the equity portion of its portfolio; they’re following a momentum strategy so as they perceive risk, the robo-advisor is transferring more money to fixed income,” said Goldstone. “They’re positioned more conservatively than the rest of the IRAs, but their equity sleeve outperformed everyone else. They still came in last place among aggressive IRAs: Because they’re conservative, they trailed everyone else.”