Top the ready-made and robo performance tables
26 Jan, 2022
Top-performing Robo Advisers 2022
Robo advisers are a simple one-stop shop to help the less confident investor get a sensible mix without frying their brains.
How do you pick one?
The most important job you need to do first up is to work out how much ‘risk’ you want to take.
Don’t just immediately pick the third cheapest wine on the list (i.e plump for the Medium Risk because that feels safest). The majority of people go for the middle option but it’s not always the right choice.
This ‘risk’ question is answered by 2 things
a) How long are you investing for?
And b) Will you meltdown and have a hernia if one day the stock market falls by 20% and sell up in a panic?
If the answer to a) is 10 years or more, and the answer to b) is “Probably not”, then you should be looking at a high risk option. This just means it will be volatile but over a longer timeframe you can ride out and ignore the peaks and troughs. And you will probably make more.
This scenario is true, for example, if you are investing in a Junior ISA for kids who are very young. The money’s in there ‘till they’re 18 – so high risk is the most sensible choice.
Planning on investing for 3 years?
If the answer to a) is 3 years, then if investing is the right option (and it may not be – it’s borderline whether you should just stick in cash) , low risk is much more sensible. If things head South your losses will be much less than a higher risk option. The larger dollop of bonds and cash in the portfolio act as an air bag if markets crash. You get a bit of the upside (hopefully) from harder-working shares, but do so in a cautious way.
Planning on investing for 5-7 years?
If it’s a 5-7 year window, then you may prefer to choose between the Medium Risk or the Higher Risk. There are no certainties. The higher risk could make more, but if you look back over previous market crashes eg the 2008 Meltdown, if you had been investing for a 5 year timeframe, and been very unlucky with timing, the higher risk portfolio may not have recovered all the losses before you’d needed to sell out and cash in.
Now it's time to look at the data
OK. Once you have worked your risk level out, have a look at the performance tables for the relative risk levels in any given peer group. Now 2 years is not really enough time to evidence skill over luck, but it’s a start. The higher the amount of shares in the portfolio, the better it should do. It’s taking more risk so you expect more return. To get a bang for your buck.
Getting the risk-rewards ratio right
The questions emerge about those providers who have relatively LARGE %s of shares in them – but do worse than most of their peers. That means you’re taking risk – but not reaping rewards.
Once you have picked 2 or 3 which you think have the right amount of shares in them for the returns you might make, then our Best Buy tables will help you to choose based on user experience and customer feedback.
If you get really stuck on the Which Risk Profile question, most of the robo advisers have questionnaires on their site which will guide to into the best solution for you. In their opinion!
So - who were the star performers?
In new research published today, Boring Money research confirms that Moneybox, HSBC and Vanguard delivered the highest returns over a 2 year period for retail investors seeking a ready-made investment solution on a UK platform.
Robo and Readymade portfolios are designed to offer a range of diversified portfolio according to different risk levels, making it easy to invest for those who don’t want to pick their own funds or shares.
They are offered by so-called robo advisers like Nutmeg, Moneyfarm and Wealthify – although most don’t offer regulated financial advice. Several platforms also offer a similar readymade option for customers that want a one-stop-shop portfolio, rather than researching their own fund and share picks.
Boring Money has been tracking the performance of a range of these portfolios since 2020. With two years of data collected, it reveals sizeable differences between the portfolios, and highlights the challenges investors face comparing them.
Top performing readymade portfolio delivers more than double its worst performing rival
The best performing ‘readymade’ portfolio has rewarded investors with more than double the return of some other portfolios at the same risk level, data from Boring Money shows.
Published today, the figures plot the performance of robo and readymade portfolios since the start of 2020 as the pandemic began. They show that the best performing high risk option returned just over 29% after charges in the last two years, while the worst return from a high risk portfolio was just 12%.
It means that a customer with a high risk tolerance investing £10,000 in January 2020 would now be more than £1,800 better off in the best performing portfolio compared to the worst performing alternative.
The figures make it easier for customers to compare these providers, which can otherwise difficult. Unlike funds, where past performance data is available for comparison through investing platforms and tools like Morningstar, robos tend to disclose themselves on their websites but this isn’t aggregated together in one place to make it easier to compare.
Holly's view
Many robo advisers are still relatively young and so tracking performance has been challenging. As they mature we can start to make some better choices based on investment skill as well as more marketing-based attributes and cost.
Performance
Boring Money collects performance data, in some cases through its own test accounts with the providers. The % allocated to shares is based on the data available at the end of December 2021 and may vary over time.
The portfolios selected are those identified by Boring Money as the high/medium/low risk options most prominently presented to customers. Some providers may have other portfolios available at different risk levels (i.e by offering more than 3 portfolio options).
Average performance figures below are the median average return for the risk level.
High Risk Portfolios
Boring Money's data shows high-risk portfolios have returned on average 22.39% since the start of January 2020. For comparison, the FTSE 100 returned -3.12% and the S&P 500 returned 47.34% for the same two-year period. Money in the top paying 2 year fixed Cash ISA is currently earning 1.2% a year.
Medium Risk Portfolios
Medium risk portfolios have returned on average 13.34% since the start of January 2020.
Low Risk Portfolios
Lower risk portfolios have returned on average 4.93% since the start of January 2020.
