ROBO RETURNS

The growing robo-advice market in the UK, with assets of £1.6 billion as at September 2017, is doing a good job of diversifying risk for retail and novice investors.

As the robo-advice market continues to develop, more firms have a long enough track record to support a more detailed dig into performance.

Boring Money has analysed robo-adviser returns for the 12 months to the end of September 2017 from 6 of the major players in the evolving UK market, including Nutmeg, Moneyfarm and Wealthify.

Portfolios are grouped into three categories to enable easy comparison by consumers across different risk profiles:

  • ‘Spicy’ portfolios are those which most closely map to the FTSE 100
  • ‘Medium’ portfolio most closely map holding a 50:50 split between cash and the FTSE 100
  • ‘Mild’ portfolios are the lowest risk portfolios

 

RETURNS

 

  • The average ‘Mild’ portfolio returned 1.3% in the 12 months to the end of September 2017
  • The average ‘Medium risk’ robo adviser portfolio returned 5.8% in the 12 months
  • The average ‘Spicy’ robo adviser portfolio returned 10.5% in the 12 months.

 

From an initial £5,000 investment in September 2016, the average ‘spicy’ portfolio returned £525. The FTSE 100 returned a higher amount of £560 over the same period, but with more volatility.

In a worst-case scenario, if someone had invested at the top and sold at the bottom, on average across the five spicy portfolios they would have lost £67 compared to a £122 ‘maximum drawdown’ from the FTSE 100.

Holly Mackay, CEO of Boring Money comments, “Increasing numbers of people are looking at robo advisers for the first time and attempting to evaluate whether they are doing a good job. Until now, comparison has been very hard. We are starting to see longer track records which enable us to have this conversation.

We see significant disparities in the ‘maximum drawdowns’ which can be used to assess the volatility of the journey. For similar risk profiles, we have seen maximum losses range from £22 to £100.  A difficult question for the industry is how to explain these very different journeys to consumers with apparently similar profiles.

What is clear is that the robos are doing a good job of serving up the benefits of diversification which I think is one of the key benefits for less confident investors.”

 

Notes to the Editors:

  • Performance data includes the underlying investment charges and robo-adviser fees. For the FTSE 100 we used a total return index and deducted charges of 0.31% – equivalent to a passive investment management fee of 0.06% and a platform fee of 0.25%.
  • The figures for maximum loss are based on the worst outcome that an investor would have experienced by investing at a peak and then withdrawing their money at a subsequent trough. Monthly returns data were used, so investors may have experienced a greater loss within a month.
  • The ‘Mild’ portfolios are the lowest risk portfolios. For Nutmeg and Netwealth we have used their most comparable unconstrained portfolios.
  • Based on initial investments of £5,000, the 12-month results for the portfolios were:

 

Mild

 

 

 

Medium

 

 

 

Spicy

 

 

MoneyFarm Portfolio 1

£5,006

0.12%

 

Wealthify Confident

£5,227

4.55%

 

Wealthify Adventurous

£5,406

8.12%

Netwealth Risk Level 2

£5,088

1.76%

 

Nutmeg Portfolio 5

£5,237

4.75%

 

MoneyFarm Portfolio 6

£5,480

9.59%

Nutmeg Portfolio 2

£5,090

1.79%

 

Netwealth Risk Level 4

£5,273

5.46%

 

Nutmeg Portfolio 10

£5,604

12.08%

Wealthify Cautious

£5,092

1.85%

 

MoneyFarm Portfolio 4

£5,302

6.04%

 

Netwealth Risk Level 7

£5,613

12.25%

evestor Portfolio 1

£5,103

2.07%

 

evestor Portfolio 2

£5,391

7.81%

 

evestor evestor Portfolio 3

£5,619

12.38%