North American markets have been riding highs in 2024, driven by interest rate cuts and increasing investor confidence that the powerhouse U.S. economy will avoid a recession. Growth investors have been big beneficiaries of the market boom, including those who use low-cost robo-advisers.
Canada’s major robo companies surveyed by The Globe and Mail generated after-fee returns ranging from 22 to 26 per cent in their growth portfolios for the year ended Sept. 30.
The performance is in line with the benchmarks: The Vanguard Growth ETF Portfolio VGRO-T and iShares Core Growth ETF Portfolio XGRO-T, were each up by about 25 per cent for the year ended Sept. 30.
It’s the second year in a row that robos generated strong returns after posting losses in 2022 alongside their comparable ETF benchmarks. Three-year annualized returns were more muted, ranging from about 5.5 to 8 per cent for the firms surveyed. Five-year annualized returns ranged from 7 to 10 per cent.
Robos continue to be a good option for investors looking to buy low-cost, diversified exchange-traded funds. Still, investors need to do some research before picking where to put their money (as they would with stocks or any investment). With ETFS, pay attention to fees, products and investment strategies. Also, don’t choose a robo based solely on its past returns. As the saying goes, past performance is no guarantee of future results.
A few notes on this year’s guide:
- CI Direct Investing didn’t provide performance data for this year’s survey, citing “compliance” reasons.
- More robos offer the relatively new first home savings account (FHSA) alongside other registered accounts. The FHSA launched on April 1, 2023, but the rollout wasn’t immediate for some financial institutions. Robos who said they offer FHSAs include: Justwealth, Questwealth, Nest Wealth, Smart Money Invest, RBC InvestEase and Wealthsimple
- The growth portfolio asset allocation ranged between 80 per cent stocks and 20 per cent fixed income to a 70-30 mix among robos surveyed.
- Fees can vary widely between robo-advisers and ESG funds – those which align with environmental, social, and governance values –tend to cost a bit more.
What is a robo-adviser? A primer:
- What do you get? A robo-adviser will gauge your investing needs and risk tolerance and then build a suitable portfolio of low-cost ETFs. Continuing management ensures rebalancing so your portfolio stays true to the prescribed mix of investments.
- What does it cost? Robos charge a portfolio management fee, which is generally applied monthly; there are also fees to own ETFs, but those are taken off the top of your returns by ETF companies (ETF returns are reported after fees). Commissions for buying and selling ETFs are included in the portfolio management fee. The exception is Smart Money Invest, whose clients are charged 1 cent per share, payable to the account custodian.
- How do you track your results? On a mobile app or your computer. Robos tend to be a step ahead of other investment companies in clearly showing personalized returns, fees and other information.
- Help: You can call or teleconference with staff; some firms assign a designated portfolio manager to clients.
- Security: Assets are typically held by third-party or related investment dealers that are members of the Canada Investor Protection Fund, which protects eligible accounts for as much as $1-million in losses caused by dealer insolvency.
- Alternatives to robos: Asset-allocation ETFs have fees as low as 0.2 per cent and are available in a variety of portfolio mixes. You may pay brokerage commissions to buy and sell them.
Click here to download an Excel version of the guide.