Here we look at the returns of robo-advisers’ “medium risk” portfolios. Again, 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 4.34% over the 1-year period, with performance ranging from 3.09% to 5.93%. In comparison, our benchmark of 50% equities and 50% cash would have returned 3.62% over the period.
Over 2 years, average returns were 10.17%, with performance ranging from 4.81% to 14.08%. In comparison, our benchmark of 50% equities and 50% cash would have returned 9.78% over the 2-year period.
Figure 1 - Returns on £5,000 invested up to the 30th September 2018
While we classify these portfolios as being “medium-risk”, the asset classes within them differ significantly as shown in the below matrix, with equity allocations ranging from 63% to 46%.
Figure 2 - Robo adviser “medium risk” 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 - “Medium risk” portfolio returns, risk-adjusted return and inter-month drawdown