Inside Robo Advisor Asset Allocation

August 22, 2014

Robo-Portfolio Exposure Highlights
  Equity Emphasis Equity Sector Over/Underweights Fixed-Income Emphasis Other
Wealthfront US Equities Underweight financials Long-dated Munis Broad-based commodities
Emerging Markets   Long-dated Munis Gold
Betterment Value   Long-dated Munis, International bonds  
Value Underweight technology Long-dated Munis, International bonds  
Future Advisor Emerging Markets
Small Cap & Value
Overweight REITs Short-dated TIPS, International bonds  
Emerging markets
Small Cap & Value
Overweight REITs Short-dated TIPS, International bonds  
Covestor US Equities, Emerging Markets,
Small Cap & Value
Overweight REITs Long-dated TIPS Broad-based commodities
Emerging Markets
Small Cap & Value
Overweight REITs Long-dated TIPS Gold
WiseBanyan US Large Caps, Growth Overweight REITs Long-dated Corporates, International Bonds  
US Large caps   Long-dated Corporates, International Bonds  
Invessence US Equities Overweight Technology Long-dated Munis, High Yield Gold, Cash
US Equities Overweight Technology Long-dated Munis, High Yield Cash

Robo Advisor Equity Portfolios


I scaled the robo advisors’ equity and fixed-income portfolios to 100 percent, as if each were an independent portfolio. Then I compared them with a single benchmark ETF: the Vanguard Total World Stock (VT│ B-100) for equities and the iShares Core US Aggregate Bond (AGG | A-97) for bonds.

With the help of’s Analytics tool, I was able to roll up statistics from each of the component ETFs to find the portfolio characteristics for each of the six robo-advisor portfolio pairs. I’ve included the full results in an appendix, for those who are up for a deep dive.

For the rest of us, here’s a top-line rundown of the robo-portfolio bets and balancing acts, compared with each firm’s stated goals. We’ll go robo-firm by robo-firm, looking at overweights; size and style tilts; sector bets; and interest-rate and credit risks. Maybe one or two of them will suit you—or my 13-year-old son, who has a small pile of bar mitzvah money, a job as a Little League umpire and a lifetime of earnings potential.


Weallthfront’s current portfolios overweight emerging markets at the expense of developed-ex-U.S. equities, expressing their investment committee’s current views. Their taxable accounts take on significant interest rate and credit risk in munis, while retirement accounts go heavily into REITs. And there are major differences between their moderate portfolios and their risky ones.

Wealthfront’s 60 percent equities allocation emphasizes the U.S. and, by extension, large-caps; while the 90 percent version tilts small, because of its 31-plus percent emerging market allocation (scaled, as above). In both cases, the allocation to the Vanguard Dividend Appreciation (VIG │A-56) pushes weighted average market-cap weights up, and increases the U.S. representation. Note that Wealthfront’s Chief Investment Officer Burt Malkiel employs VIG as a fixed-income substitute.

Wealthfront (and Betterment) trade control over portfolio duration, yields or credit risk for the tax-free status and tradability of broad-based U.S. municipal bond ETFs. Malkiel believes today’s muni yields are generous, because municipal defaults in Detroit and Puerto Rico have spooked the market.


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