Not just a pretty face: Robo advisors outperform the FTSE 100


According to financial services analyst Boring Money, five years after the launch of Nutmeg, the UK’s first automated investment platform, there is now almost £3 billion of savers’ cash invested in the still growing number of robo advisors.


Robo advisors use sophisticated online questionnaires based upon behavioural finance to gauge a person’s appetite for risk before investing their savings into ready-made portfolios of shares and other assets, typically in the form of exchange traded funds – ETFs.

Their stated aim is to bring down the cost of financial advice and ‘democratise investment’ – making it more accessible to people with smaller savings pots and increase the universe of investors.

In order to do so, a number facilitate investments from just £1, but as the platforms have developed they have become increasingly popular with relatively sophisticated high-net-worth investors keen to keep the cost of investing down.

Boring Money analysed the performance of a high-risk portfolio at seven leading robo advisors over two years and found that five had portfolios that beat the FTSE 100 index of leading shares.

five had portfolios that beat the FTSE 100 index of leading shares

Nutmeg’s portfolio ten was top dog, turning a £5,000 investment into £6,081 after charges were deducted, in the two years to September 30th.

Evestor’s portfolio three returned £6,037, while True Potential’s aggressive portfolio swelled to £6,003.

Other portfolios to beat the index were Netwealth’s risk level seven portfolio and Moneyfarm’s portfolio six.

The two chosen high-risk portfolios that failed to outperform the index were Wealthify’s ‘adventurous’ and Scalable Capital’s VaR 25%.

Investment portfolios are graded for the amount of risk they take; higher-risk ones have more invested in shares and come with greater potential for loss of capital, and it should be noted that over the period of the study ETFs were essentially tracking markets on the rise.

However, to outperform the index is something that the majority of active fund managers fail to achieve and so the robos’ performance should be viewed in that context.

The average return from the surveyed robo advisors’ high-risk portfolios over the past two years was 17.9%; the average medium-risk portfolio returned 10.2%, while the low-risk portfolios banked 2.3%.

In comparison, a tracker fund invested in the FTSE 100 would have made 17.2%.

In announcing the fact that the robo advisors narrowly beat the FTSE 100, founder of Boring Money, Holly Mackay said that the most important thing was that they were less volatile; Scalable Capital’s portfolio had the least amount of volatility for higher-risk investors.


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