The quarterly Backend Benchmarking Robo Report for Q3 is out and I am sharing my reflections after reviewing it.
Bear in mind that this is a US-centric sector in which several large incumbents have already stepped in. I don’t need to highlight that this year is unique in more than one ways.
In the robo-advisory sector we saw healthy fundraising starting with Stash as the main example and then Wealthsimple and M1.
We saw increased brand recognition for standalone fintechs in the micro-investing sector, like Acorns.
The hybrid business model (humans with machines – sorry Wealthfront) is being validated – JP Morgan is mentioned in the Robo Report as on a hiring spree for advisors that can serve digitally clients.
The most important takeaway for me, is the continued cross-selling trend in the robo sector which leads to connecting banking services with investing services. We are seeing from both the large incumbents with robo investing offerings but also from the grownup standalone Fintechs, more integrations and connecting capabilities for clients.
I pick two incumbent examples, Fidelity and BoFa.
Fidelity launched this summer, a free app – Fidelity Spire – that helps customers plan based on their goals, save and invest. It connects cash management, investing, and prompts to save towards the goals you picked.
BoFa launched in early October, a digital planning tool, goal Life Plan. Customers can access it from the BoFa mobile app and from the e-banking environment. Customers select visually their goals and their relative importance. For BoFa this is a data play that aims to eventually integrate external data (outside the bank) and via analytics serve better its customers.
Which leads to the Open Banking trend that will also affect Robos, as more and more financial service providers use Yodlee to allow for 3rd party integrations. The Robo report, mentions new agreements signed by JP Morgan and Wells Fargo.
One standalone robo example that the Robo report mentions, as an example of more services connecting banking and investments, is WealthFront.
They launched the Autopilot service in September, which manages the daily cash levels for customers, so that there is no excess cash kept in the WealthFront accounts. Self-Driving Money rollout, it announced a new feature called Autopilot in September. Autopilot monitors the customers’ account daily to ensure they keep only the amount of cash needed, not more. Wealthfront customers that switch the Autopilot on, will have their funds automatically invest, so there will be no idle cash and emotional decisions as to whether the time is right or not to invest.
The Robo report also highlights the increased SRI portfolios offerings from Robo.
By now it has become clear that no robo performance is the same and there are actually material differences depending on the chosen allocations. Small caps versus big caps, more or less tech versus value, more US rather than international; these all make a difference amongst 60-40 portfolio allocations (equity-bonds).
Overall, Morgan Stanley and SigFig maintain their performance lead in several categories.
SRI portfolios continue to do well and more Robos add such offerings (Betterment is one example that joins the SRI bandwagon). However, SRI favorable performance might be due to the fact that several growth stocks are in these SRI allocations.
The small Robo that stood out again (it was the superstar performer also in the Robo report Q1) is TitanInvest. I had highlighted TitanInvest because of its dual particularity: It uses single stocks and it can short. It did very well in Q1 2020 as it was able and did so, short. Now the robo report highlights the fact that TitanInvest`s Flagship portfolio beat indices and other robos significantly. It`s YTD (end of Q3) performance was 24.6% and its 1yr return is 38.8%. TitanInvest is an all equity robo and when compared to the average robo’s equity returns, it has offered investors an excess 30% return over the 1 year period. Titan Invest is a young company founded in early 2018 with $2.5million funding.
The report shows that the top performer overall over a 4yr period is SigFig. Fidelity Go leads in equity performance, and Schwab in fixed-income performance (again over a 4yr period).
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