Betterment Teams Up with BlackRock and Goldman Sachs, Warms Up to Smart Beta

With over $10 billion of assets under management, Betterment is the world’s largest robo-advisor by nearly $3 billion. Betterment, which had previously offered only in-house portfolios of ETFs, introduced two new portfolio options for its customers through BlackRock and Goldman Sachs. Both of the portfolio options became available to all Betterment investors Wednesday.

Goldman Sachs

Betterment’s Smart Beta Portfolio Strategy with Goldman Sachs appears to represent a divergence in the company’s way of thinking about smart beta. Smart beta is an investment strategy that uses a variety of alternative factors (such as momentum, company size, and profitability) to determine which assets should be more or less heavily weighted in a portfolio, rather than just relying on traditional market capitalization-based indices.

Previously, the company had described smart beta as just “expensive beta“, and instead defended anchoring portfolios to market cap because it provides a “free ride on the collective wisdom of millions of investors and traders globally.”

Adam Grealish, Betterment’s Senior Quantitative Investment Researcher, defended their decision. “The short answer is smart beta got cheaper since the time we wrote that article,” Grealish told FSRankings. “Additionally, in that article we point out that some of smart beta’s performance simply came from more overall market exposure. What’s great about the GSAM offering is that it keeps an overall market exposure very close to a traditional cap weighted index while delivering exposure to other investment factors that have performed well over time.”

In Betterment’s Goldman portfolio strategy, it uses smart beta to more heavily weight companies that can be described as:

  • Good value
  • High quality
  • Strong momentum
  • Low volatility

Because it’s a smart beta strategy, the fees are slightly higher than Betterment’s core offerings, but are still very low. This Smart Beta Portfolio Strategy charges ETF expense ratios of 0.11-0.24%, compared to 0.07-0.16% for Betterment’s core offerings.

BlackRock

Betterment also introduced income portfolios with BlackRock. As a non-stock market alternative, income portfolios tend to be lower risk and are often a good fit for older investors approaching or at retirement age. The strategy is a diversified 100% bond basket that aims to minimize loss and preserve capital for what Betterment described as a “growing number of Betterment customers who are seeking a low-risk investment strategy.”

At each of the four available “risk levels”, the company says that the BlackRock Target Income Portfolios provide a higher level of income yield than the corresponding Betterment Portfolios with similar risk.