Risk - Robo adviser performance Q3 2018

Risk

In August 2018, Boring Money and News UK carried out a survey of readers of The Times and The Sunday Times, looking at perceptions of risk in an investment context. We tested a range of descriptors and asked respondents to rank five random words in relation to “how risky” they compared against one another. The figure below compares how pairs of words were ranked when shown together – figures show the proportions of respondents who ranked the word across the top row as riskier than the word down the left-hand side column.

  • E.g. 60% of people thought a ‘Conservative’ portfolio was riskier than a ‘Defensive’ portfolio.
  • E.g. 91% of people thought an ‘Ambitious’ portfolio was riskier than a ‘Cautious’ portfolio.

Figures either side of the main diagonal add up to 100% and all figures above the major diagonal are above 50%.

Figure 3 - Perceived ranking of risk-rated portfolios. Base: 650 investors, 245 non-investors. Each pair of words was seen by between 188 and 243 respondents

Comparing this to the robo portfolios included in our analysis which use descriptors, Wealthsimple’s “Conservative” portfolio took significantly more risk than IG’s namesake portfolio as well as Wealthify’s “Cautious” portfolio. We measure risk here as both the inter-month drawdown, and the Standard deviation of monthly returns. Interestingly, 51% of our respondents would have perceived a cautious portfolio as being riskier than a conservative portfolio.

Figure 4 - Inter-month drawdown, standard deviation and asset allocation of robo-adviser low risk portfolios from 1st October 2016 to 30th September 2018

Over the last few months, Boring Money has carried out extensive research in understanding consumers’ views on risk, if you would like to understand this more, feel free to get in touch.

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