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%.

Broad Equity Participation Drives One-Year Performance for Schwab Intelligent Portfolios, SoFi, and Schwab Domestic Focus

Schwab Intelligent Portfolios, SoFi, and Schwab Domestic Focus delivered the strongest benchmark-adjust trailing one-year performance in the robo-advisor universe. The leaders captured strong equity returns from different angles: international diversification, domestic large-cap growth, and a domestic-tilted multi-cap mix.

International and U.S. equities both contributed to the year. The MSCI EAFE Index returned 22.01% and the MSCI Emerging Markets Index gained 30.28%, both ahead of the S&P 500’s 17.77% return. Schwab Intelligent Portfolios held 49% of its equity sleeve outside the U.S., well above the 33% peer average, capturing the international advantage. SoFi sat at the opposite end with 73% U.S. equity exposure and a heavy large-cap growth tilt, benefiting from continued strength in U.S. mega-caps. Schwab Domestic Focus, a U.S.-tilted sibling of Schwab Intelligent Portfolios, captured domestic equity gains.

Cap-size leadership was less reverted over the trailing year. The Russell 1000 Index returned 17.71%, while the Russell 2000 Index returned 25.76%, reversing the large-cap dominance that defined many prior periods. This helped portfolios with diversified market-cap exposure, including the Schwab portfolios. Growth stocks held a modest edge over value, with the Russell 3000 Growth Index returning 18.74% compared with 16.32% for the Russell 3000 Value Index, supporting SoFi’s large-cap growth concentration.

Fixed income also contributed to the rankings. High yield bonds returned 7.01%, ahead of the Bloomberg U.S. Corporate Bond Index at 4.78% and the Bloomberg Municipal Bond Index at 4.29%. Wells Fargo Intuitive Investor topped the fixed-income leaderboard with a 5.86% return, supported by a 31% high-yield allocation and a meaningful corporate bond allocation. Betterment Climate Impact SRI and Betterment Social Impact SRI followed at 4.98% and 4.82% respectively, supported by balanced bond allocations that included municipal exposure and modest high-yield weights.

Domestic Equity Concentration and Growth Positioning Fuel Three-Year Results for SoFi, Fidelity Go, and Vanguard Digital Advisor

Over the trailing three-year period, SoFi, Fidelity Go, and Vanguard Digital Advisor delivered the strongest total returns among the tracked robo portfolios. The period rewarded concentrated domestic equity exposure, large-cap growth positioning, and disciplined fixed income construction.

Domestic equities maintained a meaningful advantage. The S&P 500 returned an annualized 18.27%, ahead of the MSCI EAFE Index’s 14.31% and the MSCI Emerging Markets Index’s 15.36%. SoFi allocated 73% of its equity sleeve to U.S. stocks, above the 67% peer average, while Fidelity Go held 70% and Vanguard Digital Advisor held roughly 68%.

Large-cap stocks continued to outperform smaller companies over the period, though the gap narrowed compared with prior reports. The Russell 1000 Index returned 18.10% annualized, compared with 13.02% for the Russell 2000 Index. SoFi’s 78% large-cap allocation remained a clear advantage, with Fidelity Go and Vanguard Digital Advisor also carrying above-peer large-cap weights. Growth stocks also outperformed value, with the Russell 3000 Growth Index returning 20.61% annualized versus 14.21% for the Russell 3000 Value Index. SoFi’s 30% allocation to large-cap growth, well above the 20% peer average, supported its high ranking, while Fidelity Go and Vanguard Digital Advisor captured upside through concentrated exposure to U.S. mega-cap leaders.

Within fixed income, high yield corporates again led, with the Bloomberg U.S. Corporate High Yield Index returning 8.59% annualized. The Bloomberg U.S. Corporate Bond Index returned 4.70%, ahead of the Bloomberg Municipal Bond Index at 2.87%. Wells Fargo Intuitive Investor led the three-year fixed-income category with a 5.59% return, driven by its 31% high-yield allocation. Fidelity Go’s municipal-heavy bond sleeve delivered a more modest pre-tax return but offered meaningful tax-equivalent yield for investors in higher brackets.

Long-Term Domestic Equity Exposure and Bond Discipline Propel Eight-Year Results for Fidelity Go, SoFi, and Wealthfront

The eight-year results continue to show the power of persistent domestic equity exposure and disciplined fixed income construction. Fidelity Go, SoFi, and Wealthfront delivered the strongest total returns over the period, with each portfolio benefiting from a durable U.S. large-cap equity tilt.

The U.S. equity advantage remained dominant over the full eight-year horizon. The S&P 500 returned 13.77% annualized, well ahead of the MSCI EAFE Index at 7.89% and the MSCI Emerging Markets Index at 5.17%. Wealthfront allocated 72% of its equity sleeve to U.S. stocks, SoFi held 73%, and Fidelity Go held 70%, each above the peer average of 67%. This persistent domestic tilt helped the leaders compound returns through a period when U.S. equities repeatedly outpaced non-U.S. markets.

Large-cap and growth exposure were also important. The Russell 1000 Index returned 13.50% annualized, compared with 7.73% for the Russell 2000 Index. SoFi and Fidelity Go each held 78% of their equity exposure in large caps, while Wealthfront held 73%. Growth stocks continued to lead value, with the Russell 3000 Growth Index returning 15.79% versus 9.82% for the Russell 3000 Value Index. SoFi’s 30% allocation to large-cap growth, above the 20% peer average, supported long-term results, while Fidelity Go and Wealthfront benefited from broad exposure to large U.S. companies.

In fixed income, the Bloomberg US Corporate High Yield Index returned 5.19% annually, outpacing the Bloomberg U.S. Corporate Bond Index at 2.76% and the Bloomberg Municipal Bond Index at 2.34%. Axos Invest topped the eight-year fixed-income rankings with a 2.86% return, supported by a 15% high-yield allocation and 39% corporate bond exposure. Fidelity Go followed with a 2.61% fixed-income return from a bond sleeve that remains heavily allocated to municipal bonds. The long-term results show that both credit exposure and disciplined municipal positioning can contribute meaningfully when paired with strong equity allocations.