By Andrew Welsch

As automated investing platforms gained traction in recent years, the services known as robo-advisors often came with a performance hit due to their traditional approach to diversification, particularly an exposure to international markets.

Diversification is the hallmark of any good portfolio, but the international bent proved to be a drag versus the U.S. market and its tech-fueled stocks.

Until now. In 2025, international markets have enjoyed their time in the sun, with U.S. stocks weighed down for much of the year by uncertainty around tariffs and geopolitics. During the first six months of the year, the MSCI World ex U.S. Index returned 19.5%, outpacing the S&P 500's 6.2% return.

"The U.S. has been the place to invest for many years now, but not this year," says David Goldstone, manager of investment research at Condor Capital Wealth Management and author of the firm's long-running Robo Report. "That's why you need some exposure to international."

Interactive Brokers' robo-advisor, Interactive Advisors, benefited from its 46% international exposure, well above the robo-advisor average of 32%, according to Condor's analysis. The firm has led all robos in year-to-date returns, according to Condor, though it ranks No. 6 based on five-year results.

Vanguard's digital advice offerings -- the largest in the industry, with more than $360 billion in assets -- also leans international for stocks, aiming for 60% U.S. and 40% international. The benchmark MSCI All-World index is approximately 65% U.S. stocks and 35% international.

"We preach the benefits of diversification," says Brian Concannon, head of Vanguard Digital Advisor. "Some of those benefits may not have been readily apparent in recent years, but there has been a reversion to the mean."

Meanwhile, Robinhood Markets' new digital advice offering, Robinhood Strategies, is doubling down on the U.S. The firm is shifting its equity allocation from 77% U.S. and 23% international to 85% and 15%, respectively.

Robinhood Chief Investment Officer Stephanie Guild says the company believes there are good investing opportunities in the U.S. and notes that the firm's customers are also based in this country.

All told, the robo industry finished 2024 with $1.26 trillion in assets under management, according to Condor's estimates, up 16% from the prior year.

America and the World

Whether market performance this year is a fluke or a harbinger of a new world remains to be seen. It's possible that U.S. stocks, driven by investor enthusiasm for all things artificial intelligence, can retake their long-term leadership position. But there are reasons to exercise caution, including that U.S. stocks may be too pricey at a time of weakening economic growth.

History shows there can be long periods when international equities outperform their U.S. peers, such as the decade from 2000 to 2010. "The only thing that helped retirees retire was a broadly diversified portfolio that included international stocks," says Matt Boersen, a financial advisor and owner of Straight Path Wealth Management, of that time. He cautions investors not to get caught up in short-term performance and extrapolate it into a long-term trend.

Fidelity's robo-advisor, Fidelity Go, opts for a 70% U.S./30% international allocation for the equity portion of portfolios, says Kip Saunders, senior vice president of managed account investment product. "We've held strong to our 70/30 beliefs," he says. "We think long term, it's the place you want to be."

The firm uses four zero-fee equity index funds and two zero-fee bond funds. "We intentionally keep the [robo-advisor] product simple and low cost," Saunders says. "There is no active allocation or subasset allocations. We are trying to keep it right down the middle. We have found that resonates with clients."

SoFi Technologies' robo-advisor allows itself to make small tactical changes, deviating up to five percentage points from its benchmarks, says Brian Walsh, head of financial planning at SoFi. For instance, the firm's moderate portfolio has a benchmark of 60% equity and 40% fixed income, but is now 62% equity and 38% fixed income. The firm's equity allocation is currently about 78% U.S. and 22% international.

Schwab Intelligent Portfolios, Charles Schwab's robo, offers a variety of portfolios within three investment strategies: global, U.S., and income-focused. International exposure varies by portfolio and client risk tolerance, a spokeswoman says. It launched the U.S. option in 2018 to "expand our offering to accommodate client choice, including domestic versus international portfolio preferences," the spokeswoman said.

Alpha Robos

When robo-advisors emerged 15 years ago, they largely took a passive approach to investing, using low-cost ETFs to provide diversification. But thanks to technology and market structure, low-cost investing and active management are no longer mutually exclusive.

Robinhood's robo, for instance, uses index ETFs plus 25 to 45 stocks; the latter can comprise up to half the equity portion of a portfolio and includes names such as Palantir and Netflix. "We're not just doing quarterly rebalancing and snapping you back," Guild says. "We are trying to be thoughtful about what we are allocating to, how much we are allocating, and what stocks we are in."

Robinhood believes this approach will appeal to customers and do well in what Guild describes as a macro environment more conducive to active management than the low interest-rate environment that existed before 2022. Because Robinhood Strategies launched in March, it wasn't included in Condor's latest robo-advisor ranking. It has approximately 120,000 clients and more than $500 million in assets, according to the company.

Other robos don't pick stocks themselves, but many have long offered portfolios that include actively managed funds. Vanguard offers robo customers a portfolio that can include five actively managed equity funds and one actively managed bond fund. The active equity funds have submanagers such as Baillie Gifford and Wellington Management.

Vanguard also offers all-index portfolios, and ones that take environmental, social, and governance, or ESG, factors into account. Concannon says Vanguard takes a measured approach to changes in client portfolios, incorporating research, its capital markets outlook, and other information. "We don't go in there and actively change allocations to asset classes on a frequent basis," he says.

Investors can probably expect more active ETFs to make their way into robo portfolios in coming years. Asset managers have been launching active ETFs at a feverish pace: about 300 so far this year on top of more than 500 launches in 2024, according to Morningstar.

Joe Curtin, head of portfolio management for the chief investment office at Bank of America and Merrill Lynch, says the growing breadth of active ETFs is an important development for the industry and his company's digital advice offering. "Initially, a lot of product development was niche trading type strategies that we don't use," he says. "We use more core exposure. And that's where we have seen more product development recently."

Alternative Bots

Alternative investments are also coming to robo-advisors, albeit slowly. An early mover here is SoFi, which last year began offering robo-portfolios that include alternative investments as part of a revamp of its digital advice offering. In addition to an alternative investments portfolio, the company offers an ESG-themed portfolio and a "classic" robo portfolio consisting of stocks and bonds. SoFi also began charging a 0.25% annual advisor fee, which is in line with other robos. The company previously had no fee.

SoFi made changes in response to customer feedback and research showing that alternative investments may help provide better risk-adjusted returns in a portfolio, SoFi's Walsh says. "At a high level, we wanted to provide exposure to an alternative asset class, be it commodities or real estate, and to offer alternative strategies that are intended to achieve equity-like returns but with bondlike volatility," he says.

Funds used by SoFi can include the BlackRock Real Estate Securities Fund (BIREX), iShares Gold Trust $(IAU)$, and BlackRock Global Equity Market Neutral Fund (BDMIX). The specific alternative investments that an investor sees in his or her portfolio will depend on risk tolerance. Allocations can range from 2% to 5%, depending on the fund.

For some clients, SoFi also provides exposure to Bitcoin via the iShares Bitcoin Trust ETF (IBIT), but it limits the allocation to a maximum of 2% (similar to SoFi's allocation to iShares Gold Trust).

Other robo-advisors aren't rushing to add exposure to crypto ETFs, either because of regulatory constraints or business concerns. In Robinhood's case, the company already offers customers direct access to cryptocurrencies, and many of its robo customers already have exposure to crypto.

Robo-advisor Betterment also offers cryptocurrency exposure outside of its robo offering via a managed portfolio of Bitcoin and Ethereum ETFs. Some firms have concerns about cryptocurrencies' volatility and their short history as an asset class, which makes it difficult to embed in client portfolios. "At Vanguard, the focus is on asset classes that generate cash flows or have a prospect of doing so," Concannon says.

Even as robo-portfolios evolve, other aspects of digital advice haven't changed. Most robos still charge around 0.25% annually on assets under management. That's about a quarter of what human financial advisors traditionally charge.

Having more low-cost portfolio and investment choices can be a good thing, provided investors do their due diligence. "Good investing doesn't have to be complex investing," Condor's Goldstone says. "If you get the basic stuff right and you stick to your long-term plan, then you can do well over time."

This Year's Rankings

SoFi's robo-advisor ranked highest on this year's Best Robo-Advisors list, according to Condor Capital Wealth Management, which partners with Barron's on our annual ranking.

SoFi earned high marks for performance, low fees, and access to human financial planners. It has a $50 minimum and charges an annual advisory fee of 0.25%. Fidelity Go came in second, and also earned top marks for competitive fees and robust features. Fidelity Go has no minimum and no advisory fee for balances under $25,000. It charges 0.35% for balances of $25,000 or more.

No. 3 is Vanguard Personal Advisor, the company's hybrid robo-advisor, which combines digital and human advice. Customers get access to a team of live financial advisors at a $50,000 minimum and 0.3% management fee. Customers with $500,000 or more can get a dedicated financial advisor.

Write to Andrew Welsch at andrew.welsch@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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August 21, 2025 10:52 ET (14:52 GMT)

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