Robo Advisors All In With Foreign Stocks

If you haven’t checked out the robot-vs.-human asset-allocator test put together by MarketWatch’s Victor Reklaitis, do so quickly before I ruin your fun.

The test of knowledge Victor and his colleagues cleverly set up allows readers to guess whether eight asset allocation plans they laid out for a “hypothetical 35-year-old investor” were created by a real warm-blooded financial advisor or by one of the growing number of so-called robo advisors that have come onto the investment scene in the past two years.

Of the eight models MarketWatch included, four were from advisors and four were from computers. I ended up getting seven out of eight correct, for 87.5 percent. In the end, I incorrectly guessed one of the portfolios was put together by a human, when a robot from Wealthfront was the correct answer.

I’m thinking I can be excused for my one incorrect answer. The blue line in between, representing the Vanguard Total World Stock ETF (VT | A-98), combines the first two into a one-stop-shop global equities fund.

Now, however, foreign stocks are taking the lead in a classic reversion to the mean that has been validated by strong ETF flows so far this year into foreign equities, as we reported recently. A lot of that has to do with aggressive quantitative easing by the European Central Bank and the Bank of Japan at exactly the same time the Federal Reserve ended QE in the U.S.

The chart below is clear about where the returns are now. Foreign stocks are all the rage.

Charts courtesy of StockCharts.com

But were they timing markets or perhaps betraying a bit of home-country bias? It’s hard to say, but it’s clear that human advisors and robo-advisors (or the humans who program them) are capable of serving up some “active” subjectivity relative to a benchmark.

Cost Matters

The one detail that came through clear as a bell is that humans as well as robots favored cheap mutual funds and ETFs funds from Vanguard and, to a lesser extent, from Schwab.

In the end, whatever your asset allocation plan is, no one can really fault your advisor or robo advisor for making this choice or that choice—as long as you stick to your plan and limit the variability of your expected returns over time.

But spending too much is unconscionable, and it’s clear from MarketWatch’s fun asset allocation test that both real and robo advisors have their heads screwed on straight enough to understand the importance of controlling costs.

At the time this article was written, the author held no positions in the securities mentioned. Contact Olly Ludwig at [email protected] or follow him on Twitter @OllyLudwig.