Affluent private investors have matched or outperformed professional managers’ returns over the past ‘torrid’ couple of years.
Interactive Investor client portfolios worth £20,000-plus have grown nearly 40 per cent in the two years to March 2022, beating the fund industry’s 40-85 per cent shares sector which saw growth of just over 33 per cent.
Growth was far less stellar for both groups over 27 months – starting back before the pandemic appeared on the horizon – and the professionals bested DIY investors over the longer period.
Trading trends: Younger customers age 18-24 saw the biggest falls in the first quarter of this year, and portolios held by the 65-plus age group were down the least
Major world markets and the US S&P 500 outperformed over both two years and 27 months, but active investors got the edge on UK indices over the longer time frame.
Ordinary investor and fund manager performance is pretty much on a par over the past three, six and 12 months, while major indices did better.
>>>See II DIY investor performance versus the 40-85% share fund sector and world, US and UK markets below.
How did II calculate investor performance? Scroll down to the box below for a full explanation
II says comparing customer performance with that of indices is thought provoking, but it is not a like for like comparison because customers will on average have a blend of cash and bonds in their portfolios – and meanwhile active managers can add value over longer time frames.
Chief executive Richard Wilson says: ‘The horror unfolding in Ukraine has framed what was already a torrid time for markets.
‘So, it’s no surprise to see the first quarter of the year chart the first negative average returns since we first started publishing this index.
‘Markets don’t go up in a straight line and this index is a sobering reminder of that. It’s also a reminder of the importance of taking a long-term view, and not putting all your eggs in any one regional basket.
‘The UK’s comeback over the year to date illustrates that very clearly.
‘With more questions than answers for many investors in the current uncertain environment, there remain few alternative options beyond the stock market for those who want long term growth and income. The challenge is building a weatherproof, balanced portfolio.’
The II analysis also revealed the following.
– Younger customers age 18-24 saw the biggest falls in the first quarter of this year, and portolios held by the 65-plus age group were down the least.
– However, younger investors and millionaires have performed best over 27 months, and II says these two groups have one thing in common: the highest exposure to investment trusts.
‘There are no ‘passive’ investment trusts – it is pure active,’ the firm says. ‘Conversely, these groups also performed the worst in the first quarter, and that could well be due to the fact that investment trusts can gear [borrow] to enhance returns: great when markets are rising, but a drag in a falling market.’
– Whether you are an active or a passive investor, over longer periods of time it can be painful to ignore the US, according to II.
‘Historically, though, active managers have struggled to outperform the US index, because it is so efficient. There’s no reason why people won’t blend active and passive strategies with these sorts of issues in mind. And if you are all about cost, you might prefer passives.’
– Anyone with a big holding in Scottish Mortgage will have felt a fair bit of pain in recent months, and it has fallen to second position in the top holdings category amongst 18-24 year olds, points out II (see below).
It notes the trust is down 28 per cent over six months and 23.3 per cent over the three months to the end of March this year, in share price total return terms.
– The Vanguard Lifestrategy range also dominates the average holdings across all age groups, apart from the 65-plus category where high yielding FTSE 100 blue chips dominate, adds II.
Top funds and trusts: II breaks down favourite buys across age groups
How did II calculate investor performance
The customer performances figures quoted above are median values to avoid the influence of outlier performance on the data, says the investing platform.
‘The performance is calculated using the ‘time weighted rate of return’ with returns calculated before each money transaction, then the results compounded over the reporting period.
‘The time-weighted rate of return is a measure of the compound rate of growth in a portfolio. It eliminates the distorting effects on growth rates created by inflows and outflows of money.
‘Then median averages are calculated independently for each group we analysed – so that outlier performances did not skew the results.’
II says portfolio values under £20,000 were stripped out to keep the sample representative of its core customer base.
It charges a flat fee – £9.99 a month for the core plan – so is tilted towards customers with larger pots. Percentage fees are more cost effective for investors with smaller pots.