Performance Commentary

Backdrop

The S&P 500 began 2026 with momentum, climbing to an all-time high on January 27. However, the quarter’s trajectory shifted in late February when the United States and Israel launched strikes on Iran, triggering a closure of the Strait of Hormuz, sending oil prices surging, equity markets lower, and complicating the Federal Reserve’s policy path. By quarter-end, the index was tracking a -4.35% return for the first three months of the year, a meaningful pivot from the double-digit gains of 2024 and 2025. Technology-heavy names led the decline amid rising rates and risk-off sentiment.

International equities faced similar headwinds. The Iran conflict introduced geopolitical risk premiums across global markets, with Asian economies such as China and India, which are highly dependent on Middle Eastern crude, among the most exposed. Developed market equities broadly declined alongside U.S. stocks as energy prices weighed on corporate margins and growth expectations.

Yet beneath the volatility, several key pillars of the economy remain intact. Corporate earnings are still growing at a double-digit pace. The unemployment rate, while modestly elevated from prior-year levels, stabilized at 4.4% in February, unchanged from five months earlier, suggesting the labor market is not deteriorating materially despite recent softening. AI-driven business investment continues to underpin GDP, and the Federal Reserve has held rates steady. As we often remind clients, maintaining discipline during periods of uncertainty has historically been among the most important contributors to long-term investment success.

Style leadership in Q1 broadly favored defensive and energy-oriented sectors. The Energy sector posted gains as oil prices surged, while Communication Services, Information Technology, and Consumer Discretionary, the leading sectors of the prior two years, faced meaningful pressure. Value stocks broadly outperformed growth on a quarter-to-date basis.

In fixed income markets, interest rate volatility was significant during Q1. The 10-year Treasury yield, which stood at approximately 4.17% at year-end 2025, trended lower in January and February, dipping to around 4.08% in mid-February, as investors anticipated an eventual easing cycle. However, the Iran war materially changed the interest rate outlook. Energy-driven inflation concerns pushed the 10-year yield sharply higher, reaching approximately 4.46% by late March. The 30-year mortgage rate climbed to roughly 6.38%, adding further headwinds to an already strained housing market. These rising Treasury yields limited the total return potential for fixed-income investors in the quarter given the inverse relationship between bond yields and prices. Municipal bonds faced similar pressures, though their tax-equivalent yields remained attractive for investors in higher brackets.

The Federal Reserve held rates steady at both of its Q1 meetings, keeping the federal funds target range unchanged at 3.50%–3.75%. Fed Chair Jerome Powell cited solid economic activity, moderating but still elevated inflation, and the uncertainty introduced by the Iran conflict as key factors in the Committee’s patient stance.

At the March meeting, the FOMC released updated economic projections. The dot plot continued to reflect a median expectation of one rate cut in 2026, unchanged from December, though 7 of 19 policymakers projected no cuts at all. Core PCE inflation projections were revised upward slightly to 2.7% for year-end, while GDP growth was nudged higher to 2.4%.

 Tech Rebound and Benchmark-Beating Equity Sleeves Drive One-Year Results for Betterment Innovative Technology, Schwab Domestic Focus, and SoFi

Betterment Innovative Technology, Schwab Domestic Focus, and SoFi delivered the strongest trailing one-year performance in the robo-advisor universe measured against their normalized benchmarks. The leaders’ performance came from their equity sleeves: Betterment Innovative Technology’s equities returned 30.57% and Schwab Domestic Focus’s 29.88%, both well ahead of the broad Russell 3000’s 22.80% return, while SoFi’s returned 27.35%.

International and emerging markets led the trailing year, but the leaders were not positioned there. The MSCI Emerging Markets Index returned 44.16%, roughly double the S&P 500’s 22.29%, and the MSCI EAFE Index gained 20.94%. Schwab Domestic Focus held 74% of its equity sleeve in U.S. stocks and SoFi 75%, both above the 68% peer average, while Betterment Innovative Technology was the only leader with above-average international exposure at 38% versus the 32% peer norm. The domestic-tilted leaders overcame the headwind through what they owned within the U.S. market rather than by chasing the year’s best-performing regions.

Cap-size leadership reversed over the trailing year, with the Russell 2000 Index returning 40.91% against the Russell 1000’s 21.99%. Schwab Domestic Focus was built to capture this: it held just 60% of equities in large caps versus the 71% peer average and 19% in small caps versus the 9% norm. SoFi took the opposite route and won anyway, with 82% in large caps and only 2% in small caps, both the most extreme positions in the universe, riding the mega-cap names that drove the second-quarter recovery. Betterment Innovative Technology sat between them at 68% large and 13% small.

Value led growth for the full year, with the Russell 3000 Value Index returning 27.72% versus 18.24% for the Russell 3000 Growth Index, yet two of the three leaders carried above-average growth tilts. Betterment Innovative Technology allocated 34% of equities to growth and SoFi 38%, the two highest growth weights in the universe against a 28% peer average, and both were rewarded as technology names led the second-quarter rebound (the Russell 3000 Growth Index returned 17.06% in Q2 versus 14.02% for value). Schwab Domestic Focus ran the mirror-image with 21% growth and 39% value, and collected the full-year value premium instead. That both postures beat their benchmarks underscores that this year’s leaderboard was decided inside the sleeves, not by style selection alone.

On the fixed-income front, municipals led the year among major sectors, with the Bloomberg Municipal Bond Index returning 7.03% the Bloomberg US Corporate Index at 4.34%, and the Bloomberg US Aggregate Bond Index at 3.79%. The fixed-income leaderboard followed the muni trade almost exactly: Vanguard Personal Advisor, Schwab Intelligent Portfolios, and Schwab Domestic Focus run muni bond sleeves, also with durations of 6.8, 6.6, and 6.8 years that also captured the sector’s longer-duration strength.

Growth Concentration Lifts Three-Year Results for SoFi, Fidelity Go, and SigFig

Over the trailing three years, SoFi, Fidelity Go, and SigFig delivered the strongest returns among the tracked robo portfolios measured against their normalized benchmarks. SoFi led by a wide margin, while Fidelity Go and SigFig also finished strong in a period when nearly every other portfolio trailed its own.

The three-year period was strong nearly everywhere, and emerging markets narrowly led. The S&P 500 returned an annualized 20.57%, the MSCI Emerging Markets Index returned 23.55%, and the MSCI EAFE Index returned 17.14%. SoFi allocated 75% of its equity sleeve to U.S. stocks and Fidelity Go 71%, both above the 68% peer average, capturing the S&P 500’s strength. SigFig took a different route to the same result, holding 40% of its equity sleeve outside the U.S. versus the 32% peer average, an overweight that paid off in a window when emerging markets outperformed the S&P 500.

Large caps maintained their edge over smaller companies, though the gap narrowed relative to prior reports. The Russell 1000 Index returned an annualized 20.43% versus 18.60% for the Russell 2000. SoFi held 82% of equities in large caps, Fidelity Go 76%, and SigFig 75%, all above the 71% peer average, with small-cap stakes in the single digits that sidestepped the volatility smaller companies carried through the period’s two drawdowns.

Growth led value decisively over three years, with the Russell 3000 Growth Index returning an annualized 22.23% versus 17.76% for the Russell 3000 Value Index. SoFi’s 38% growth allocation, the highest in the universe against a 28% peer average, was the primary driver of its first-place finish; its equity sleeve returned 22.18% annualized, in line with the growth index itself. SigFig carried 29% growth and Fidelity Go 27%, closer to the peer norm but still positioned in the mega-cap growth stocks that led the period.

In fixed income, credit dominated the three-year window: the Bloomberg US Corporate High Yield Index returned 8.85% annualized and EM debt 8.45%, versus 5.28% for investment-grade corporates, 4.15% for the Aggregate, and 3.75% for municipals. Wells Fargo Intuitive Investor again led the three-year fixed-income category at 6.18%, driven by a 31% high-yield allocation that remains far above the 4% peer average. Axos Invest followed with 16% in high yield and 36% in corporates, and Betterment Climate Impact SRI  blended a 51% municipal base with 21% corporates and a 6% high-yield stake.

Durable Domestic Large-Cap Tilts Sustain Eight-Year Results for SoFi, Fidelity Go, and Wealthfront

Among the portfolios with full eight-year records, SoFi, Fidelity Go and Wealthfront  delivered the strongest returns measured against their normalized benchmarks. They were the only portfolios in the eight-year cohort to beat their benchmarks; Vanguard Personal Advisor and SigFig essentially matched their own, and the rest of the field trailed.

The U.S. equity premium was the foundation of all three. The S&P 500 returned 13.75% annualized over the eight years, well ahead of the MSCI EAFE Index at 8.27% and the MSCI Emerging Markets Index at 6.43%. SoFi held 75% of its equity sleeve in U.S. stocks, Wealthfront 73%, and Fidelity Go 71%, each above the 68% peer average, and eight years of compounding that domestic tilt did much of the work.

Large-cap superiority was even more pronounced, with the Russell 1000’s 13.46% annualized return roughly doubling the Russell 2000’s 6.95%. SoFi devoted 82% of its equity sleeve to large caps, Fidelity Go 76%, and Wealthfront 71%, against a 71% peer norm, and their limited small-cap stakes shielded performance from the weaker returns that persisted among smaller companies for most of the period.

Growth beat value by a wide margin over the full horizon, with the Russell 3000 Growth Index returning 15.49% annualized versus 9.91% for the Russell 3000 Value Index. SoFi’s 38% growth allocation, far above the 28% peer average, has been the purest expression of the winning formula and the main source of its first-place equity record. Fidelity Go (27% growth) and Wealthfront (26%) held steadier, more balanced versions of the same posture, relying on their broad large-cap exposure to capture the mega-cap growth franchises that dominated market returns.

In fixed income, high yield led the eight-year window, with the Bloomberg US Corporate High Yield Index returning 5.38% annualized versus 3.92% for muni high yield, 3.07% for investment-grade corporates, 2.55% for municipals, and 2.02% for the Aggregate. Axos Invest topped the eight-year fixed-income table, supported by a 16% high-yield allocation, four times the 4% peer average, and a 36% corporate weight. Wells Fargo Intuitive Investor followed on the strength of its 31% high-yield stake, with Empower close behind on a 24% corporate allocation with 8% in high yield.