Investors seeking alpha typically wouldn't sign up for a robo-advisor, or digital investment manager. After all, these algorithm driven investment managers like Wealthfront, Betterment and Schwab Intelligent Advisory are known for passive, index-fund type investment portfolios.
In fact, a robo-advisor's strong suit is market matching stock and bond index returns, automatic portfolio rebalancing and investment management for a low management fee.
Yet, investors might be surprised at the diversity among these robo-advisor fintech darlings. Although most robo-advisors follow a passive investing strategy, there are those digital investment platforms that strive to beat the market.
As the robo-advisory industry expands, there are a growing number of robo-advisors that branch out beyond the passive investing style and include active management strategies in an attempt to beat the markets.
From robo-advisors such as Wealthsimple and M1 Finance that offer unique types of investments to Qplum and T.Rowe Price ActivePlus Portfolios that focus on creating alpha, the actively managed robo-advisory sphere is growing.
Investors seeking an opportunity for low fee investment management, with the possibility of beating the indexes, might consider an actively managed robo-advisor.
Known for its free money and investment management tools, the paid Personal Capital Advisors digital platform is sensitive to changes in the economic climate.
Typical passive investing includes setting an asset allocation in line with the users age, goals and risk tolerance and then rebalancing periodically. Personal Capital offers dynamic asset allocation, that goes beyond the usual passive investment approach.
Unlike passively managed robo-advisors, Personal Capital adjusts the client's investments when goals change or market conditions evolve.
They use a Smart WeightingTM investment approach that equal weights the market sectors as opposed to the typical method of market weighting.
Similar to the equal weight index fund approach, only focusing on sectors in lieu of companies, Personal Capital claims that this approach better protects investments from losses in a market decline. The firm claims that their strategy might lead to higher returns than the typical passive index fund investing of other robo-advisors.
Qplum, created by former hedge fund investment pros, seeks to actively manage investors funds in an attempt to create alpha and beat the returns of a passively managed portfolio.
Instead of offering several passively managed investment portfolios, Qplum uses active management strategies that adapt to changing market conditions. The robo-advisor combines these strategies with downside risk management that reduces equity exposure during declining markets. "We focus on a mix of beta (market returns) and alpha (above market returns) investment strategies and target a certain level of risk in each client’s portfolio," according to the Qplum website.
T.Rowe Price ActivePlus Portfolios
With 10 model portfolios, T.Rowe Price ActivePlus strives to offer investment strategies that match up with multiple types of goals. Their approach uses 8 to 13 actively managed investment funds aligned with the investor's goals and risk tolerance. This active management approach is unique to T.Rowe Price and distinct from the strategies of Personal Capital and Qplum.
Although most robo-advisors charge a management fee, T.Rowe Price forgoes the overall management fee. The investor pays only the individual fund management fees. Investors researching active robo-advisors should compare total fees in aggregate and consider the providers services as well.
Another niche robo-advisor, BuildingBenjamins is affiliated with Tradition Capital Management. This upstart uses both strategic and tactical asset allocation in their actively managed robo-advisory platform. The tactical asset allocation adjusts the percentages of stocks, bonds and other assets according to specific factors and the individual investor's goals. BuildingBenjamins differentiates itself by investing in alternative asset classes beyond U.S. and international stock and bond funds including reinsurance, commodities, alternative lending and others.
The Actively-Managed Robo-Advisor Wrap Up
As market volatility increases and robo-advisory competition heats up, the industry is pushed to innovate. Existing robo-advisors are adding new features and investment styles to better compete. New platforms are cropping up to capture niche markets. These four robo-advisors with active management approaches are only a sample of this expanding sphere.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclosure; I have a professional relationship with Qplum and Personal Capital but am receiving no compensation for writing this article.