Performance Commentary

Highlights

• Over the past year, SoFi, TD Automated Investing, and Betterment Climate Impact led returns by emphasizing large-cap, domestic, and growth equities.
• SoFi distinguished itself with a 35% growth allocation, while Betterment Climate Impact’s 82% large-cap tilt outperformed small-caps’ modest 11.53% gain.
• Domestic large-cap stocks and municipal bonds propelled Wealthfront, Fidelity Go, and SoFi to top three-year results, beating international equities and corporate bonds.
• Heavy allocations to U.S. large-cap and growth stocks helped Fidelity Go, SoFi, and Zacks Advantage dominate over seven years, riding the S&P 500’s strong performance.
• High-yield corporates lifted one-year fixed-income returns, while municipal bonds provided resilience over three- and seven-year horizons, protecting portfolios from corporate bond losses.

Backdrop

The S&P 500 Index rose by 2.39% in the fourth quarter of 2024. The index finished 2024 gaining 25% and posting 57 new all-time-high closes in 252 trading days, one of the strongest years on record dating back to 1929. Drilling down into the index, the market narrowed in the fourth quarter. Growth stocks outperformed their value counterparts, and large-caps outperformed small-caps. Quarterly market moves were impacted by the November 5th election for the 47th president of the United States. President Trump won the election, and the market began pricing in the potential impacts to President Trump’s second term. Throughout the quarter, the Federal Reserve Open Market Committee (FOMC) had two meetings and cut interest rates by 0.25% at both meetings, finishing the year with a federal funds target rate range of 4.25% – 4.50%. The U.S. Economy continued its strong 2024 in the fourth quarter, and corporate earnings followed suit.

International equities underperformed domestic equities in the fourth quarter of 2024. The MSCI EAFE Index returned –8.06% in the quarter, while the MSCI Emerging Markets Index returned –7.85%. Global economies continued to underperform the U.S. economy, with Europe generally faring slightly better than Asia but still posting negative returns. Trump’s election during the quarter brings international trade back to the forefront, and the uncertainty surrounding the incoming administration’s trade and foreign policy regimes may have been a factor in the quarter’s international equity performance.

In fixed-income markets, one of the biggest stories of the fourth quarter was a normalization of the yield curve. The curve, which had been inverted for over a year, saw rates fall on the short end thanks to the FOMC’s rate cut decisions, while the longer end of the curve saw rates rise notably. The 10-year Treasury yield jumped by over 0.75% in the period from 3.781% up to 4.569%. In a negative quarter for bonds across the board, high-yield corporates held up much better than their investment-grade counterparts.

Large-Cap Domestic Growth Drives One-Year Performance for SoFi, TD Automated Investing, and Betterment Climate Impact

Over the past year, SoFi, Betterment Climate Impact, and TD Automated Investing have emerged as top performers in terms of overall portfolio returns, as allocations to large-caps, domestic, and growth equities all played pivotal roles.

Large-cap stocks significantly outperformed small-cap stocks during this period. The Russell 1000 Index, representing large-cap equities, gained 24.50%, overshadowing the Russell 2000 Index’s 11.53% return for small-caps. Betterment Climate Impact stood out with an 82% allocation to large-cap equities, well above the average robo-advisor allocation of 69%. TD Automated Investing also exceeded the average with 77%, while SoFi maintained a 73% allocation. Allocations to large-cap equities allowed these portfolios to leverage the strong performance of market leaders.

Growth stocks continued to outpace value stocks, with the Russell 3000 Growth Index delivering a robust 32.45% return, more than doubling the Russell 3000 Value Index’s 13.96%. SoFi emerged as a leader in the growth category, holding a 35% allocation to growth stocks, compared to the average allocation of 26%. Betterment Climate Impact had a 29% allocation, while TD Automated Investing held an average weight of 27%. These above-average exposures enabled the portfolios to benefit from the strong rally in growth equities. Additionally, SoFi’s overweight in technology and consumer cyclical stocks helped amplify returns during a period when those sectors led the market rebound, and Betterment Climate Impact’s lighter energy weighting, in favor of tech, also bolstered its performance.

Domestic equities once again outperformed international markets, as shown by the S&P 500’s 25.00% return compared to the MSCI EAFE Index’s 4.43% and the MSCI Emerging Markets Index’s 7.97%. TD Automated Investing had 75% of its equity allocation in domestic stocks, SoFi had 72%, both exceeding the average of 68%. This tilt toward U.S. equities proved advantageous, amplifying the gains driven by the strong domestic market environment.

On the fixed income side, corporate bonds outperformed municipal bonds over the past year, with the Bloomberg Municipal Bond Index returning 1.05% compared to the Bloomberg US Corporate Bond Index’s 2.13%. High yield bonds also outperformed investment grade, as the Bloomberg US Corporate High Yield Index posted an 8.19% return—well above the Bloomberg US Corporate Bond Index. One of the fixed income winners for this period, Wells Fargo, dedicated 32.25% of its fixed-income holdings to high yield, far exceeding the average of 4.47%. This substantial allocation to high-yield corporates helped boost overall returns, driven by higher coupon income and strong performance in a risk-on environment.

Domestic Equities and Municipal Bonds Drive Three-Year Performance for Wealthfront, and Fidelity Go, and SoFi

Over the past three years, Wealthfront, Fidelity Go, and SoFi have led in performance, benefiting from strategic allocations to large-cap U.S. equities and municipal bonds—two areas that generally outperformed their counterparts in this period.

Domestic equities outperformed international markets, with the S&P 500 Index delivering an annualized return of 8.91%, far surpassing the MSCI EAFE Index’s 2.26%. Among the top-performing portfolios, Wealthfront allocated 76% to domestic equities, Fidelity Go maintained 70%, and SoFi came in at 72%, all exceeding the average robo-advisor allocation of 68%. This emphasis on U.S. stocks proved to be a key driver of their outperformance.

Large-cap equities continued to outpace small-caps during this stretch. The Russell 1000 Index, representing large-cap stocks, returned 8.38% annually, compared to the Russell 2000 Index’s 1.21%. Fidelity Go capitalized on this trend by maintaining a 77% allocation to large-cap stocks, surpassing the average of 69%. Wealthfront came in just above the average at 71%, while SoFi also stood out with 73%. These allocations helped all three portfolios seize the performance advantage associated with large-cap leadership.

Growth stocks outperformed value, returning 9.92% annually for the Russell 3000 Growth Index vs. 5.37% for the Russell 3000 Value Index, although the gap was not as large as in some prior periods. Fidelity Go maintained a 25% allocation to growth, while Wealthfront held around 23%. SoFi, in contrast, carried a higher 35% allocation to growth, which provided an additional boost but was not the sole driver of outperformance given the strong overall environment for large-cap domestic equities.

In the fixed income space, municipal bonds offered better returns than corporate bonds. The Bloomberg Municipal Bond Index declined just 0.55% over the period, outperforming the Bloomberg US Corporate Bond Index’s 2.26% loss. All three top-performing portfolios incorporated municipal bonds into their allocations, benefiting from their tax-exempt status and relatively resilient performance. This allocation toward municipal bonds helped shield these portfolios from some of the downside in corporate bonds, further supporting their overall three-year performance.

Domestic Equity Exposure Helps Fidelity Go, SoFi, and Zacks Advantage Over the Prior Seven Years

The standout performers during this time were Fidelity Go, SoFi, and Zacks Advantage. These portfolios tended to favor investments in large-cap and domestic equities, an approach that has proven particularly advantageous given market conditions over the past seven years.

Fidelity Go and SoFi both exceeded the average domestic equity allocation of 69% for the robo-advisors we track during this period, with exposures of 70% and 72%, respectively. Zacks Advantage led the group with a substantial 83% allocation to domestic equities, an allocation that proved beneficial given the S&P 500 Index’s strong annualized return of 13.79%, surpassing the MSCI EAFE Index’s 4.70% and the MSCI Emerging Markets Index’s 1.73%. This emphasis on U.S. equities allowed these portfolios to benefit from the robust performance of the domestic market over the past seven years.

Moreover, these winners prioritized large-cap stocks, which outperformed small-caps during this time period. The Russell 1000 Index, representing large-cap equities, delivered a 13.55% annualized return, notably higher than the Russell 2000 Index’s 6.87%. Fidelity Go had the highest large-cap allocation at 77%, while SoFi and Zacks Advantage recorded large-cap exposures of 73% and 66%, respectively, compared to the overall average of 69%.

The balance between growth and value allocations also helped shape equity performance. The Russell 3000 Growth Index posted an impressive 17.37% annualized return, more than double the Russell 3000 Value Index’s 8.22%. SoFi stood out with a 35% growth allocation, noticeably above the average of around 26%. Fidelity Go and Zacks Advantage both maintained growth exposures of 25% and 24%, respectively. While SoFi’s heavier tilt toward growth contributed positively to its results, neither Fidelity Go nor Zacks Advantage lagged in this regard, as all three portfolios held meaningful stakes in growth-oriented equities.

By contrast, portfolios with higher allocations to value stocks struggled. Schwab Intelligent Portfolios, for instance, had a 41% allocation to value equities—well above the 30% average—and it ranked among the worst performers over the seven-year period. Though value stocks can provide downside protection during bouts of volatility, the dominance of growth stocks in recent years weighed on portfolios heavily tilted toward value.

In the fixed-income arena, municipal bonds outperformed corporate bonds over the past seven years, with the Bloomberg Municipal Bond Index returning 1.94% compared to the Bloomberg US Corporate Bond Index’s 1.80%. Each of the three leading portfolios allocated a portion of their holdings to municipal bonds, taking advantage of their tax-exempt status and comparatively stable returns. This muni exposure provided a buffer against losses in corporate bonds, ultimately enhancing the portfolios’ overall performance over the seven-year period.

By combining large-cap, domestic equity biases with generally balanced growth allocations—and by avoiding outsized tilts toward value stocks—Fidelity Go, SoFi, and Zacks Advantage were able to capture the upside of a long-running bull market in U.S. equities. Their strong equity performance, complemented by prudent fixed-income positioning, propelled them to the top of the robo-advisor pack over the last seven years.