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.
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.
‘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.’
“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.
