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There are all sorts of dark clouds on the horizon when it comes to investing right now. Stubborn inflation, high interest rates and endless talk of a possible recession make it a tough time to be an investor.

But despite all that, it has been an undeniably good year for people who use robo-advisers. Every one of Canada’s major robo-adviser companies surveyed by The Globe and Mail returned to profit for their growth portfolios in the year ended Sept. 30. It’s a marked change from 2022, when the same companies all posted losses similar to comparable ETF benchmarks.

This year, multiple top performers brought in double-digit returns for their ordinary growth portfolios, including Questwealth Portfolios, in the lead with 13.14-per-cent returns after all fees.

While some benchmarks such as the U.S.-listed Vanguard Growth Index Fund ETF (VUG-A) brought in 27-per-cent gains over the same period and outperformed robo-advisers, others were more modest, such as the TSX-listed iShares Core Growth ETF (XGRO-T), which posted a 10.9 per-cent gain. It still points to the benefit of low-cost portfolio managers as a relatively safe option.

These kinds of online portfolio managers have cemented themselves as an ideal way for investors to save for the future with relatively low fees, very little friction and easy-to-use apps and websites.

But the differences between these companies in terms of how they build their portfolios, the fees they charge and, ultimately, the returns they generate can be notable.

When it comes to fees, some companies, such as Nest Wealth, give generous discounts to investors with balances of more than $100,000. Others offer better value for people starting out with lower sums.

This year, we also published how robo-advisers compare on environmental, social and governance (ESG) portfolios, and there are notable differences in returns and asset allocation.

Key findings

  • Fees can vary in big ways: There was a wide range of fees between companies, especially when the amount of money you have invested is taken into account. It’s an important factor when choosing an adviser.
  • ESG doesn’t necessarily mean you’re sacrificing gains: The best-performing portfolio over the past year was actually an ESG account from Justwealth, which brought in a 14.13-per-cent gain. That outperformed its regular growth portfolio despite a noticeably higher MER. Other ESG portfolios also posted double-digit returns.
  • Note the long-term gains: The companies listed in this survey have all been around long enough to show their returns over the past five years. You should put more emphasis on this figure than one-year performance. On the ESG side, many companies are still new to the game and were only able to show one or three years of returns.
  • Low minimum account balances make for an easy start: One of the most appealing things about robo-advisers remains their low barrier to entry. The companies in this list all had relatively low minimum balances or no minimum balance at all for some of their products. It’s ideal for people new to investing.
  • Exposure to U.S. markets varies wildly: Many firms on the list don’t invest in U.S.-listed ETFs at all, while others allocate 40 per cent or more.

What is a robo-adviser? A primer:

  • What do you get? A robo-adviser will gauge your investing needs and risk tolerance and then build you a suitable portfolio of low-cost ETFs. Continuing management ensures rebalancing so you stay true to the prescribed mix of investments.
  • What does it cost? Robos charge a portfolio management fee, which is generally applied monthly; there are also fees to own ETFs, but those are taken off the top of your returns by ETF companies (ETF returns are reported after fees). Commissions for buying and selling ETFs are included in the portfolio management fee. The exception is Smart Money Invest, which charges 1 cent per.
  • How do you track your results? On a mobile app or on your computer. Robos tend to be a step ahead of other investment companies in clearly showing personalized returns, fees and other information.
  • Help: You can call or teleconference with staff; some firms assign a designated portfolio manager to clients.
  • Security: Assets are typically held by third-party or related investment dealers that are members of the Canada Investor Protection Fund, which protects eligible accounts for as much as $1-million in losses caused by dealer insolvency.
  • Alternatives to robos: Asset-allocation ETFs have fees as low as 0.2 per cent and are available in a variety of portfolio mixes. You may pay brokerage commissions to buy and sell them.

Click here to download an Excel version of the guide.

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.

Editor’s note: A previous version of this article incorrectly based the assessment of iShares Core Growth ETF (XGRO-T) on returns from an incorrect date range. This version has been updated.

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