Vanguard Personal Advisor Services leads robos in risk-adjusted returns

The hybrid robo's straightforward approach minimizes volatility without sacrificing performance, new report finds

Aug 7, 2018 @ 6:45 am

By Ryan W. Neal

With a simple, broad-based fund approach, Vanguard Personal Advisor Services keep portfolio volatility lower than other automated investing services without sacrificing performance, according to the latest edition of BackEnd Benchmarking's "The Robo Report."

The straightforward approach used by Vanguard's hybrid robo gave it the highest two-year Sharpe ratio measured by BackEnd among the more than two dozen robo-advisers it covers. BackEnd opens comparable portfolios at all the different robo-advisers.

(More: 10 funds with the greatest Sharpe ratios)

SigFig and WiseBanyan also posted high two-year Sharpe ratios for relying on domestic and international funds for equity exposure and taking a market-neutral approach across sectors, market cap and style.

Vanguard PAS also allocates all fixed income to domestic municipal bonds, which have outperformed compared to the foreign bonds picked by other robos.

(More: How robos weathered Q1 market volatility)

On the other hand, Schwab Intelligent Portfolios has done well in fixed income by holding riskier products, such as high-yield bonds and foreign bonds. The exposure makes portfolios more volatile but has helped Schwab lead on two-year fixed-income performance by a wide margin.

The report also noted that while Fidelity Go has outperformed over the past year, the firm replaced holdings in the robo's portfolios with proprietary mutual funds that do not charge an expense ratio. A 35-basis-point management fee is the only expense consumers pay, but it remains to be seen what sort of effect the funds will have on performance.

(More: Fidelity resets the fee-war bar with zero-expense index funds)


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