2023 Rewind: Robo-Advisor insights

2023 — what a year for the markets.

As such, we wanted to take some time to review the hypothetical performance (net of fees) of our Robo-Advisor's model portfolios for 2023, and discuss the market trends. We'll wrap up by looking at the year ahead.

Keep in mind that these performance figures are hypothetical, net of fees, and don't represent a particular account or composite of accounts, as Robo-Advisor launched halfway through the year.

Hypothetical performance stats

Despite bond market volatility this year¹, our model portfolios showed positive hypothetical performance.²

Defensive

• 2023 return: 9.31%
• Max drawdown: (-4.99%)

Slow & Steady

• 2023 return: 12.31%
• Max drawdown: (-6.24%)

Balanced Bundle

• 2023 return: 15.33%
• Max drawdown: (-7.42%)

Bold Stack

• 2023 return: 16.83%
• Max drawdown: (-7.99%)

Aggressive Growth

• 2023 return: 19.84%
• Max drawdown: (-9.08%)

What drove performance in 2023?

Bonds

In 2023, ‌market commentary was focused on interest rates, especially regarding the actions of the Federal Reserve (the "Fed"). The Fed adjusts interest rates to control inflation and spur economic growth. When rates go up, it usually negatively impacts bond prices, and when they go down, bond prices tend to rise.

Many expected the Fed to raise rates from February to November, causing a bond sell-off. However, in November, things shifted. Positive economic signs emerged, and the Fed indicated a slowdown in inflation.

This resulted in a bond rally, with the Vanguard Total Bond Market Index Fund ETF showing a 5.65% return for the year. The Vanguard Total International Bond Index Fund experienced a similar trend with a more pronounced rally.

Looking ahead, the market is anticipating potential interest rate cuts, which would be favorable for bonds

Stocks

Stocks had a positive year, with Vanguard Total Stock Market ETF (VTI) returning 24.67%, and Vanguard Total International Stock ETF (VXUS) returning 11.31%.

The seven leading tech giants known as the "Magnificent Seven" - Amazon, Apple, Alphabet (Google), Meta (Facebook), Microsoft, Nvidia, and Tesla - contributed to the strong performance of VTI. Despite these companies only making up just around 25% of VTI.

Collectively, the Magnificent Seven achieved an impressive average return of over 111%. Among them, Nvidia was a top performer, recording a 239% return, largely attributable to its crucial involvement in the AI revolution.

VXUS, being more diversified than VTI, holds almost twice as many securities, spanning various sectors globally, including semiconductors, manufacturing, biotech, consumer packaged goods, and energy.

However, many sectors lagged behind the impressive tech performance in 2023, leading to lower performance than VTI. Novo Nordisk stood out in VXUS, making headlines with its new blockbuster weight-loss drug, Ozempic, and returning just over 76%.

What’s ahead for 2024?

The future is uncertain! Some analysts think the US economy might experience a "soft landing" — curbing inflation while avoiding another recession.

Will artificial general intelligence be developed, transforming the economy (or destroying the world)? Maybe OpenAI has the answer. There's also the chance vaccines could revolutionize cancer treatment.

In uncertain times, we believe the best portfolio is a well-diversified portfolio of both stocks and bonds, that represents all regions, industries, and sectors.

Revolut’s Robo-Advisor portfolios ‌keep that in mind, with low management fees and automatic rebalancing, allowing you to invest without needing a crystal ball.

Glossary:

• Max drawdown — the maximum loss of an investment from a peak to a trough during a specific timeframe, usually expressed as a percentage. It provides an indication of the risk and potential losses associated with a particular investment or portfolio.
• Inflation — the rate at which the general level of prices for goods and services rises, eroding purchasing power. When inflation is high, each unit of currency buys fewer goods and services.
• Interest rates — the cost of borrowing money or the return on investment for lenders. They're usually expressed as a percentage and can be influenced by various economic factors.
• Recession — a significant decline in economic activity across the economy, lasting for an extended period. It's often characterized by a decrease in gross domestic product (GDP), employment, and other economic indicators.
• Artificial general intelligence (AGI) — a type of artificial intelligence that can understand, learn, and apply knowledge across a broad range of tasks at a level comparable to human intelligence. AGI is a more advanced form of AI that can perform any intellectual task that a human being can.

¹This year, Vanguard’s Total Bond Market Index Fund ETF had a 1-year standard deviation of 8.50% versus the 10-year standard deviation of 4.82%.

²Disclaimer: Performance returns and max drawdown returns shown are hypothetical, based on the model portfolios offered, and are generated based on the securities held in the chosen model portfolio at year-end. Time period of returns from 1/1/2023 to 12/31/2023. Performance is shown net of fees — a 0.25% annual fee, charged monthly, and reflects a one-time deposit of at least $1200 on 1/1/2023. Smaller deposits over the same time period would have lower returns and higher drawdowns due to our monthly minimum fee charge of $0.25. Figures include rebalancing, reinvested dividends and assume a money market return of 5.17%. Returns aren't based on actual trading and weren't actually achieved by the management of any portfolio. They are for illustrative purposes only. Accordingly, no assumptions or comparisons should be made based upon these returns. Changes in the model portfolio will impact the generated hypothetical returns, and therefore results will vary with each use and over time. The model was developed with the benefit of hindsight and without undertaking actual financial risk. In addition, results don't reflect the impact of economic and market factors or whether conditions or objectives of the model portfolio change in the future.

Important Disclosures: Revolut’s Robo-Advisor is Revolut Wealth Inc., an SEC Registered Investment Adviser. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability. The content in this update is not intended to offer or deliver investment advice in any way. Information regarding investment services are provided solely to gain an understanding of our investment philosophy, our strategies and to be able to contact us for further information.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. All market data is sourced from third party market data providers. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

Past performance is no guarantee of future returns. All investing involves risks including the possible loss of capital. Asset allocation and diversification does not ensure a profit or protect against loss. Please note that out-performance does not necessarily represent positive total returns for a period. There is no assurance that any investment strategy will be successful. All investments carry a certain degree of risk. Dividends are not guaranteed, and a company’s future ability to pay dividends may be limited

Additional Important Disclosures may be found in the Revolut Wealth Form ADV Part 2 Brochure. For a copy, please click here.