Wealthy DIY investors have outperformed fund managers since the pandemic – but stock markets have outperformed both
- Global markets and the US S&P 500 outperformed over 2 years and 27 months
- But active investors gained an advantage over UK indices over an extended period
- DIY investors and fund managers are down 3.6% and 3.7% over the past three months
- Interactive Investor analyzed the performance of clients with pots over £20,000
Wealthy individual investors have matched or surpassed the returns of professional managers over the last “hot” years.
Interactive Investor’s client portfolios, valued at over £20,000, have grown nearly 40 per cent in the two years to March 2022, outperforming the 40-85 per cent equity sector of the fund industry, which has grown just over 33 per cent.
Growth was far less stellar for both groups over 27 months — starting before the pandemic loomed on the horizon — and the professionals outperformed the DIY investors over the longer period.
Trading Trends: Younger clients, aged 18-24, saw the largest declines in the first quarter of this year, and portfolios held by those aged 65+ saw the least declines
Major world markets and the US S&P 500 outperformed over both the 2-year and 27-month periods, but active investors gained an advantage over UK indices over a longer period.
The usual performance of investors and fund managers has been pretty much the same over the past three, six and 12 months, while the major indices have outperformed.
>>>See below the performance of II-DIY investors compared to the 40-85% equity fund sector and the world, US and UK markets.
How did I calculate investor performance? Scroll down to the box below for a full explanation
II says comparing client performance to that of indices is thought-provoking, but it’s not like-for-like as clients, on average, have a mix of cash and bonds in their portfolios — and meanwhile, active managers can add value over longer periods of time create.
CEO Richard Wilson says: “The horror unfolding in Ukraine has framed an already hot period for the markets.
‘It is therefore not surprising that the first quarter of the year saw the first negative median returns since we first published this index.
“Markets don’t rise in a straight line and this index is a sobering reminder of that. It’s also a reminder of the importance of thinking long-term and not putting all your eggs in one regional basket.
“Britain’s comeback so far this year shows that very clearly.
‘With more questions than answers for many investors in the current uncertain environment, few alternative options remain beyond the stock market for those seeking long-term growth and income. The challenge is to build a weatherproof, balanced portfolio.’
II analysis also revealed the following.
– Younger clients, aged 18-24, saw the largest declines in the first quarter of this year, and portfolios held by those aged 65+ saw the least declines.
– 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 mutual funds.
“There are no such thing as ‘passive’ mutual funds – they are purely active,” the company says. ‘Conversely, these groups were also the worst performers in the first quarter, which may well be due to investment trusts taking off [borrow] to enhance returns: great when markets are rising, but a resistance when markets are falling.’
– Whether you are an active or passive investor, ignoring the US can be painful over time, says II.
“In the past, however, active managers have struggled to outperform the US index because it is so efficient. There’s no reason people don’t have active and passive strategies in mind with these types of problems. And if all you care about is cost, you might prefer passives.’
– Anyone with a large holding in Scottish Mortgage will have felt quite the pain in recent months and it has fallen to second place in the top holdings category among 18-24 year olds, II points out (see below ).
It notes that confidence is down 28 percent over the past six months and 23.3 percent in the three months to the end of March this year, as measured by total share price returns.
– The Vanguard Lifestrategy series also dominates average holdings across all age groups, apart from the over-65 category where high-yield FTSE 100 blue chips dominate, II adds.
Top Funds and Trusts: II breaks down the most popular purchases by age group
How did I calculate investor performance?
The client performance numbers above are medians to avoid the impact of outliers on the data, the investment platform said.
“Performance is calculated using a ‘time-weighted return’ where returns are calculated before each money transaction and the results are then compounded over the reporting period.
“Time-weighted return is a measure of a portfolio’s average rate of growth. It eliminates the distorting effects on growth rates caused by money inflows and outflows.
“Then medians are calculated independently for each group we analyzed so that outlier performances don’t confound the results.”
II says portfolio values below £20,000 were removed to keep the sample representative of its core client base.
It charges a flat fee – £9.99 a month for the core plan – so is aimed at customers with larger pots. Percentage fees are more cost-effective for investors with smaller pots.
Regional returns since early 2020
Wealthy DIY investors have beaten fund managers since the pandemic
Source link Wealthy DIY investors have beaten fund managers since the pandemic