How does Wealthsimple Invest compare to Betterment’s Core portfolio offering?

Betterment and Wealthsimple Invest both offer portfolios comprised of low-cost ETFs that give investors exposure to a number of different asset classes across the globe. Despite their similarities, however, there are some differences that you should consider when deciding whether to move management of your account to Betterment.

Betterment’s Core portfolio strategy includes both stocks and bonds in the U.S., international developed, and international emerging markets. The Wealthsimple portfolio includes exposure to all of these asset classes except for international bonds. The performance of bond markets in different regions is tightly connected to the interest rate environment in each region. Investing in international bonds provides a level of global interest-rate diversification, which helps mitigate interest rate risk. Conversely, by investing in a portfolio with a global bond allocation, the bond portion of the portfolio could underperform a bond portfolio with exposure only to the U.S. market.

While both the Betterment and Wealthsimple portfolios invest in stocks across the same global markets there are some differences in how stocks are weighted in each region. The stocks in Betterment’s portfolio include a tilt toward size and value, two drivers of long-run historical outperformance identified by Fama & French. Practically, this means Betterment invests more in companies with smaller capitalizations and companies with a low price relative to their perceived intrinsic value. The Wealthsimple portfolios do not tilt toward size and value factors, but instead toward low volatility. Wealthsimple uses minimum volatility funds that aim to reduce exposure to stock market volatility. This type of strategy can potentially minimize the peaks and valleys of typical market-cap weighted stock allocations.

Another key difference between the Wealthsimple and Betterment portfolios is that the Wealthsimple portfolio invests in gold. Betterment’s portfolio does not invest in gold or any other commodity. Some research suggests that exposure to gold can help investors hedge against inflation or deflation risks, when compared to more typical stock and bond investments. Betterment’s portfolio does not include gold because Betterment feels the long-run expected return and risk profile of commodities is significantly less favorable when compared to stock and bond investments. Both Betterment and Wealthsimple portfolios invest in treasury inflation-protected securities as a hedge against inflation.