Which Robo Best Protected Your Nest Egg During COVID-19?

Posted on June 1, 2020


One of the most common goals we aim for as investors is building a sufficient nest egg for retirement. Years of earning, saving, and withstanding volatility are some of the sacrifices necessary to be comfortable and financially secure in our old age. One of the ways Backend Benchmarking hopes to make this a little easier is by providing transparency and insight into the robo-advisor IRA space. For this article, we focus on robo-advisor performance during the COVID-19 sell-off.

During the first quarter of this year, stocks experienced a deep decline coinciding with the spread of the pandemic. For example, the Russell 3000 index and MSCI EAFE index both dropped over 20% by the end of the quarter. Our robo-advice portfolios also dropped across the board, but there were notable standouts in terms of performance against their respective Normalized Benchmark (comparing similar asset allocations with a similar benchmark). In particular, our top three performing IRA accounts were Wealthsimple, SoFi, and TIAA-CREF. It is worth noting that compared to the taxable accounts we track in Robo Report, the IRA accounts we track have a higher percentage of equities and a more aggressive allocation due to the longer time horizon. 

Wealthsimple IRA:

Wealthsimple was the clear top performer. It outperformed its Normalized Benchmark by 3.49% in the first quarter at a time when investors needed it most. The fixed-income portion of the portfolio provided the ballast; Wealthsimple chose long-duration US Treasuries and long-duration US TIPs for nearly all of its fixed-income allocation. What stands out is its’ focus on longer-maturity bonds compared to more intermediate choices that we often see. Long-dated high-quality bonds have been one of the best performing asset classes when stocks perform poorly.  For example, in Q1 2020, Wealthsimple’s fixed-income allocation returned 15.92% while the more intermediate-maturity iShares Aggregate Bond ETF, AGG, returned 3.10%.


Our SoFi IRA account outperformed its Normalized Benchmark by 1.47% in large part due to its equity holdings. It contained over 50% of its assets in SFY, a US large-cap fund tilted toward growth. Large-cap domestic equities have not only out-performed over the past three years as well as year-to-date.   Additionally, a trend that is becoming increasingly pronounced is the persistent outperformance of growth over value. Growth actually offered significant protection compared to the broad market, while value contributed to more losses. SoFi’s strategic allocation of SFY may continue to benefit investors if these trends continue. 


The third-best performer was TIAA-CREF, returning 0.42% over its Normalized Benchmark. TIAA-CREF performed well because, similar to the portfolios above,  it holds a sizable allocation to large-cap domestics and investment-grade fixed income. TIAA holds roughly half the portfolio in TIEIX, a large-cap index fund, which avoids the more vulnerable sections of the equity market such as foreign and small. On the fixed-income side, TIAA has the vast majority of its bonds in an investment-grade bond index which actually helped its performance. Many of the competitors we track in the Robo Report opt for more high-yield bond options at the peril of giving up downside protection. By keeping it simple, TIAA performed well. 


When examining what has protected an investor’s nest egg, we draw on two major observations. First,  a value-tilt has contributed to poor performance during the COVID-19 sell-off while the opposite was true for growth. If this regime continues, it is a good idea to keep an eye out on the style of your stocks.  Second, it is worth looking closely at what bonds your robo holds; so far, longer-term higher-quality bonds continue to offer superior downside protection during a crash. All in all, being aware of how your robo invests and how these investments respond to a downturn can better help you prepare and respond during these difficult times. 

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