The interactive investor (ii) index: Q3 2024
Everyday investors maintain strong performance over nearly five years with the 35-44 cohort leading the charge.
11th November 2024 12:12
by Camilla Esmund from interactive investor
interactive investor, the UK’s second-largest investment platform for private clients, has launched the latest instalment of the ii index, which provides a unique insight into how ii customers have fared and positioned their portfolios in the ever-changing investment arena.
- Invest with ii: SIPP Account | Stocks & Shares ISA | See all Investment Accounts
Our index data now goes back almost five years, covering the period spanning from the beginning of 2020 to the end of Q3 2024.
Key findings:
- The average ii customer outperformed the IA Mixed Investment 40-85% Shares sector across six of the seven time frames examined
- Over four years and nine months (to 30 September 2024), the average ii customer returned 23.7% versus 22.62% for the IA Mixed Investment 40-85% Shares sector
- Longer-term outperformance is led by those in the 35-44 age cohort, but the 65+ cohort also outperformed over two and three years
- The youngest investors ended their performance winning streak, recording the lowest aggregated return over shorter time frames (bar one year) compared to other age groups
- Women continue to marginally outperform men over the longest periods, while the reverse is true over shorter time frames
- The popularity of investment trusts continues to wane, with portfolio weighting to the instrument down to 18.7% in Q3 2024, falling from 19.2% in Q2 2024 and a high of 22.9% in Q4 2021
- The average portfolio weighting to ETPs (a category of investments largely consisting of exchange-traded funds ETFs) reached a new high of 9.7% in Q3 2024, up from 9.4% in Q2 2024 and above the low of 5.7% three years ago in Q1 2021.
Performance: ii customers vs. the IA Mixed Investment 40-85% Shares sector
4 years 9 months (%) | 3 year (%) | 2 year (%) | 1 year (%) | 9 month (%) | 6 month (%) | 3 month (%) | |
All ii investors | 23.7 | 10.7 | 23.5 | 14.7 | 8.2 | 3.8 | 1.4 |
IA Mixed Investment 40-85% Shares | 22.62 | 7.53 | 19.84 | 13.84 | 7.63 | 3.33 | 1.62 |
18 - 24 | 25.0 | 6.1 | 22.5 | 15.5 | 8.0 | 2.9 | 0.5 |
25 - 34 | 26.6 | 7.9 | 22.7 | 15.3 | 8.2 | 3.0 | 0.6 |
35 - 44 | 27.3 | 10.0 | 23.1 | 15.1 | 8.5 | 3.4 | 0.8 |
45 - 54 | 25.5 | 9.9 | 23.2 | 15.0 | 8.5 | 3.6 | 1.1 |
55 - 64 | 23.5 | 9.9 | 23.2 | 14.7 | 8.3 | 3.9 | 1.4 |
65+ | 22.8 | 11.8 | 23.8 | 14.4 | 8.0 | 4.1 | 1.8 |
Source: interactive investor
Myron Jobson, Senior Personal Finance Analyst at interactive investor, says: “Our one-of-a-kind comprehensive snapshot of how self-directing private investors are faring reinforces the sentiment that fortune favours the patient investor who maintains a well-diversified portfolio.
“From the Covid pandemic to current heightened geopolitical tensions, the investment landscape has shifted dramatically over the almost five-year period covered by the ii index. Against this backdrop, our customers have managed to generate strong returns, with the average ii portfolio up 23.7% over the period.”
You can download the full research here.
What is driving outperformance among the 35-44 and 65+ cohorts over longer time frames?
A closer look at the typical portfolio makeup of each age cohort offers some clues to their respective performances.
The 35-44 cohort, which recorded the highest return over the longest period (four years and nine months), has the largest weighting to funds, with an average portfolio weighting of 31.7% compared to 26.1% for the average ii customer.
They also have the highest weighting to exchange-traded products (ETPs) – a category of investments largely consisting of exchange-traded funds (ETFs) – at 18% compared to 9.7% for the average ii customer.
The opposite is true when it comes to investment trusts, with investors in the 35-44 age group having the lowest weighting to the investment instruments, with an average portfolio weighting of 9.9% compared to 18.7% for the average ii customer.
Funds account for seven of the top 10 most-held investments by the 35-44 cohort, with Vanguard LifeStrategy 80% Equity ranking highest in second position. Gilt UNITED KINGDOM 0.25 31/01/2025 (LSE:TN25) tops the list, with investment trust Scottish Mortgage Ord (LSE:SMT) and US stock Tesla Inc (NASDAQ:TSLA) completing the top 10.
Conversely, the outperformance of the 65+ age group over three and two years is powered by aggregated portfolios that have the highest weighting to investment trusts and equities and the lowest weighting to ETPs, funds, and bonds compared to other age groups.
The top 10 most-held investments list among the cohort is dominated by stocks, accounting for eight out of the top 10, with Alliance Witan Ord (LSE:ALW) at the helm. Scottish Mortgage and Fundsmith Equity also make the top 10 cut.
What has changed from last instalment?
Portfolio weighting to investment trusts continues to wane
The popularity of investment trusts has notably dropped off in recent instalments of the ii Index and has dipped once again, with the average portfolio weighting to the instrument among ii customers standing at 18.7% by the end of Q3 2024, down from 19.2% in Q2 2024 and a high of 22.9% in Q4 2021.
Investment trusts were boosted by the narrowing of discounts from an average of 19% last October, the widest level since the global financial crisis, to 11% by the end of February this year. The average discount has since widened to 14.8%, according to recent data from the Association of Investment Companies (AIC).
Meanwhile, the popularity of bonds inched higher, with allocations to instruments in the ‘other’ category (meaning fixed income and corporate bonds) climbing to 3.3%, up from 3% in Q2 and a low of 0.4% in Q1 2021.
ETP and fund exposures continue to grow
One of the emerging themes in recent instalments of the ii index is a growth in the popularity of ETPs and funds. The average portfolio weighting reached a new high of 9.7% in Q3 2024, up from 9.4% in Q2 2024 and above the low of 5.7% three years ago in Q1 2021. Meanwhile, fund exposure climbed once again – up to 26.1% in Q3 2024 (from 25.9% in Q2).
Kyle Caldwell, Funds and Investment Education Editor at interactive investor, says: “Investment trusts have faced significant headwinds since the end of 2021, particularly due to rising interest rates. In particular, alternative income strategies, such as the renewable energy infrastructure sector, have suffered. Rate rises caused a re-pricing of valuations, which widened investment trust discounts, in turn harming share prices.
“As interest rates rise, so do bond yields. As a result, income seekers have more options and can take less risk, as the safest types of bonds, such as gilts, offer yields of around 4% compared to virtually nothing when interest rates were at rock-bottom levels. Falling interest rates could act as a catalyst for a change in fortunes for alternative income strategies, as well as other investment trusts that have been out of favour.”
Sam Benstead, Fixed Income Lead at interactive investor, says: “Investors have been moving to take advantage of the attractive tax status of gilts as well as inflation-beating yields of around 4%. If held outside an ISA or a SIPP, coupons are taxed as income, but capital gains are tax-free. The difference between the purchase and sale price, or the purchase price and the £100 redemption value, is therefore free from capital gains tax, which may be about to rise in the coming budget.
"We have seen the most interest in gilts maturing in the next couple of years, trading at a discount to their £100 redemption value.”
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