Canada’s robo-advisers are delivering different returns to their customers. Why the dispersion?

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There are two simple explanations for the dispersion: differences in asset allocation and differences in portfolio management approach

Robo-advisers – online investment management firms that use simple algorithms to place investors into suitable portfolios – have grown in popularity, at least in part, because of low-cost index funds. Evidence suggests that low-cost index funds tend to beat most active fund managers, and robo-advisers tend to use them extensively on that basis.

This means that for the “growth” asset allocation profile – a profile indicating medium-high risk – robo-advisers have delivered materially different returns to their customers. To gain an understanding of the dispersion in robo-adviser returns, I looked at the asset allocation approaches for a handful of Canadian robo-adviser Growth portfolios:

It has no doubt made these changes with good intentions, but its performance has suffered relative to a simple buy-and-hold indexing approach. The Globe finds that Wealthsimple’s returns are the lowest among Canadian robo-advisers.for the Questwealth portfolios are overt about their active management, which is intended to “limit losses” and look for “opportunities to improve your returns.

 

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