Here we look at the returns of robo-advisers’ “low risk” portfolios. All nine robo advisers feature with a 1-year track record, seven of the robo advisers have a 2 year track record.
On average, these portfolios returned 0.67% over the 1-year period, with performance ranging from -0.48% to 2.05%. In comparison, saving in a leading easy access cash ISA would have returned 1.23% over the period.
Over 2 years, average returns were 2.32%, with performance ranging from -0.36% to 4.16%. In comparison, a leading easy access cash ISA would have returned 2.29% over the 2-year period.
Figure 1 - Returns on £5,000 invested up to the 30th September 2018
While we classify all of these portfolios as being “low-risk”, the asset classes within them differ significantly as shown in the below matrix, with equity allocations ranging from 31% to 0%.
Figure 2 - Robo-adviser “low risk” portfolio asset allocation over the 12 months to 30th September 2018
To compare the risk taken to achieve returns, we have looked at the risk-adjusted return and inter-month drawdown across these portfolios. We measure risk-adjusted return using the Sharpe ratio. This can be interpreted as the return achieved for every unit of risk taken.
We measure the inter-month drawdown as the most a consumer would have lost if they’d invested at the end of the month where portfolios were at their highest and then withdrew at the end of a subsequent month they were at their lowest.
Figure 3 - “Low risk” portfolio returns, risk-adjusted return and inter-month drawdown