As robo-advisors proliferated, there was little for investors and advisors to use to differentiate one from the other, aside from the promises of product providers and slick advertisements. Now, as robo-advisors swell towards an anticipated $166 billion AUM, comparative research from Martinsville, N.J.-based BackEnd Benchmarking  finds huge disparities in robo-advisor returns.

In its most recent Robo Report for the third quarter of 2017, BackEnd Benchmarking studied the performance of 20 of the nation’s more prominent direct-to-investor robo-advisors, finding a 281-basis-point difference between the top and bottom performers.

“That's a very wide dispersion of returns, but we should remember that for most of our research we’re only looking at a little more than a year’s worth of results,” said David Goldstone, research analyst at BackEnd Benchmarking and one of the report’s co-authors. “In the next quarter, we’ll be jumping into two-year numbers and we expect to see reults come more in line.”

The best-performing robo-advisor year-to-date is offered by TD Ameritrade, generating a return of 11.81 percent in a balanced portfolio in a taxable account. Coming in a close second are offerings from SigFig and Betterment, according to BackEnd, which each offered investors 11.75 percent returns within taxable portfolios.

In BackEnd’s analysis, two different accounts were opened with each robo-advisor: a taxable account invested in a balanced “moderate” portfolio allocation of 60 percent stock and 40 percent bonds, and an IRA with the most aggressive strategy made available by the digital advice platform.

In the third quarter of 2017, almost all of the robo-advisors tended to favor large-cap growth equities, with a few exceptions. According to BackEnd, the best equity portfolios tended to hold total stock market ETFs tracking a U.S. or global index. SigFig’s robo-advisor offered the best equity performance, posting 17.34 percent reutns year-to-date, with Vanguard coming in second after posting 16.64 percent returns through the first three quarters.

“Any of the firms making a bold sector bet had weaker performance because they did so,” said Ken Schapiro, founder and president of BackEnd Benchmarking. “More plain vanilla indexing leads to better performance than taking a bet on a sector. No one with a robo-advisor has really gotten that right yet.”

Balanced portfolios from Schwab and E*Trade’s ETF model service tended to resemble a portfolio of mid-cap growth stocks, while E*Trade’s hybrid offering tended to hone more closely to a small-cap growth model.

One outlier, from Acorns, tended to favor value stocks, an allocation that hurt the portfolio’s performance thus far in 2017. Acorns also posted the lowest year-to-date returns through Sept. 30 in a taxable account, at just over 9 percent.

Acorns laggard performance can be attributed to some significant shifts in the robo-advisor’s asset allocation. Over the third quarter, the service slashed its REIT holdings from 9.9 percent to 5.9 percent and cut its exposure to small-cap stocks from 23.9 percent to 10.3 percent. Acorns also nearly doubled its interntional exposure from 9.6 percent at the beginning of the year to 14.9 percent at the end of the third quarter.

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