Page 29 - DIY Investor Magazine | Issue 39

DIY INVESTORS OUTDO THE PROFESSIONALS
Figures revealed by DIY investment broker interactive investor show that between January 2020 and October 2023, retail investors outperformed the professionals as they stuck to their strategies and defied market volatility – by Christian Leeming
Investors with at least £20,000 in their portfolio generated a cumulative average return of 8.2%, which lags the top market indices, but beats professional fund managers; the IA Mixed Investment 40-85% Shares sector returned just 7.7% over the same period.
Over the past three years, ii customers made an average return of 18.2% which eclipses the 10.3% achieved by the professionals; the figure was down 2.9% over two years, but fund manager returns were off 5.5% – private investors have beaten the professionals across every time period since 2020.
Over the last year, investor returns lagged market indices, returning 7.9%, but still ahead of the professionals who returned 5.27%. In the year to date, ii customers have ground out a 2.8% average return, lagging the FTSE All Share index gain of 4.5% and well below the S&P 500’s 11.4%; however, they remained ahead of fund managers who have returned just 2.2% since January. CEO Richard Wilson, said: ‘In an ever-changing world, customers are sticking with solid long-term strategies, avoiding knee-jerk reactions, and patiently building long term wealth.
‘But they are also open to potential new opportunities, with bonds looking more interesting as yields have risen.’
WHAT HAVE INVESTORS BEEN BUYING?
Investors backed both active and passive strategies, diversifying their portfolios by investing across the UK and
US; once one of the most bought investment trusts, Scottish Mortgage has fallen out of favour, following significant share price falls. However, it currently ranks in second place amongst 55-64 year-olds and remains in the top 10 across all age ranges.
Alliance Trust replaced it, and is the most held investment for the two youngest age brackets and investors over 65 following a period of strong performance.
Fundsmith Equity remains a staple for ii investors, followed by Vanguard LifeStrategy 80% Equity, as investors increase their exposure to passive funds. An emerging theme from the report is the growing popularity of bonds, following the recent surge in yields as markets price interest rates staying higher for longer. Two UK government bonds, gilts, made the top 10 most held investments among customers aged 25-34 and 35-44 in Q3 2023.
‘Some investors are taking advantage by moving money into the bond market, where they are finally being rewarded with attractive yields – with gilts, where the risk of default is effectively zero, now paying between 4.5% and 5% a year,’ said ii’s bonds specialist Sam Benstead.
‘Gilts come with the added bonus of being capital gains tax free, which has boosted the appeal of low coupon bonds set to mature soon, where the vast majority on the total return comes from capital appreciation when the bonds mature.’
YOUNGER INVESTORS OUTPERFORM THEIR SENIORS
Another theme from ii’s private investor index is the outperformance of younger investors compared to their seniors over the long term. The oldest cohort – investors aged 65 plus – posted the best three-year return (up 20.6%) as well as two and one-year returns; however, they performed worst over the longest time frame of three years nine months, returning 7.6%.
By comparison, those 18-24 averaged a return of 10.3% from Jan 2020 to the end of Sept 2023, while 25 to 34-year-olds and 35 to 44-year-olds gained 10.6% and 10.7% respectively.
This can be partially explained by younger investors’ higher exposure to cash and bonds, which can pay off in a high interest rate environment.
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Nov 2023
DIY Investor Magazine ·