Private Investor Performance Index Q3 2021

DIY investors outperform over one year with older investors leading the way.

• Female investors beat men in Q3, while investors in Scotland fared best
• Oldest and youngest adult customers lead over 12 months – and these groups have the highest investment trust exposure
• The wealthy (£1m plus accounts) have outperformed all other asset bands over all time periods covered

In a quarter besieged by concerns over inflation, the average interactive investor customer portfolio, in median average terms, grew by 1.57% in Q3 2021.

This was ahead of professional fund managers in the multi-asset sector, with the Investment Association’s Mixed Investment 40-85% shares sector average up 1.33%, but below the returns generated by the FTSE All-Share and World indices – up 2.23% and 2%, respectively.

The 18-24 age category was the best-performing interactive investor age category in Q3, returning 1.82%, with the 65+ age cohort in second (1.68%).

interactive investor is the UK’s second-largest investment platform for private investors, approaching £55 billion assets under administration. Its Private Investor Performance index, updated quarterly, is a barometer of how investors are faring, whatever the economic backdrop. With data now going back 21 months, the index charts interactive investor’s customer performance data, in median average terms, since the first coronavirus cases emerged in the UK.

Richard Wilson, CEO, interactive investor, says: “With almost two years of data behind our index – and counting – we can now get a clear picture of how the twists and turns of a tough period have played out on private investor portfolios.

“Our customers have a mix of shares, ETFs, investment trusts, funds (including those with high bond weightings) and cash, so comparing with other indices and sectors is not straightforward – but it is still thought provoking. Our findings won’t always make for comfortable reading, either. Investing is intrinsically a long-term game and requires patience – an important and not always easy discipline during uncertain times.”

Oldest and youngest lead over 12 months

Private investors outperformed the average professional multi-asset fund manager over the 12 months to 30 September, with older investors performing the best.

The average ii customer account is up 23.95% over the year to 30 September 2021, with the 65+ age cohort outperforming all other age groups, returning 25.1%. Customers in the 18-24 age group were the second-highest performing age group (up 23.9%).

This outstrips the return of the average fund in the Investment Association’s (IA) Mixed Investment 40-85% shares sector (16.77%), but trails behind the 27.89% return of the FTSE All-Share and the FTSE World Index (24%), over the same period.

High on trusts – low on cash

Yet again, what ii’s youngest and oldest customers have in common is a higher-than-average allocation to investment trusts. These tend to outperform funds in a rising market, and underperform in a falling market, due to gearing (borrowing). While the average ii customer has 21% exposure to investment trusts, the 18- to 34-year-olds had a punchier allocation of 33% (albeit with a lower-than-average allocation to direct equities). For the over-65 age group, investment trust average exposure is 27%.

The over-65 age group may also have benefited from having the lowest cash exposure of all the age groups (7.5%) over the past year - and the highest direct equity exposure (45%) – especially if you consider the fact that direct equity exposure tends to have a home bias on ii, over a period in which the UK has performed well. Conversely, this may also explain why this age group have performed the worst over the past 21 months.

The short and the long of it

Over the longer term (21 months to 30 September 2021, which is as far back as the data currently goes), the average ii customer account is up 11.26% in median average terms. This beats the FTSE All-Share (2.41%), but is below the Investment Association’s Mixed Investment 40-85% shares sector average return (14.03%) and the FTSE World (28.72%).

The 18-24 age group generated the best performance on average over the past 21 months, returning 19.13%, followed by the 25-34 age cohort (16.84%), then 35–44-year-olds (15.97). (15.97%). The 65+ age group performed the worst on average over the period, returning 8.5%.

Over six months to 30 September 2021, the average ii customer portfolio was up 7.05%, more than the IA’s Mixed Investment 40-85% shares sector average of 6.36%, but it is slightly behind the 9.69% return of the FTSE World Index and the FTSE All-Share (7.95%). That said, ii’s 18–24-year-old customers, on average, managed to outperform the latter index – they were up a median average of 7.96%.

Since the start of the year to the end of September, the average ii customer portfolio was up 10.48% over the year to date, more than the IA’s Mixed Investment 40-85% shares sector average (8.09%) but behind FTSE World (14.17%) and FTSE All-Share (13.56%).

Moira O’Neill, Head of Personal Finance, interactive investor, says: “The outperformance of the FTSE World since the start of January 2020 underpins the advantages of having a globally diversified portfolio regardless of the market environment.

“Our customers have plenty of overseas exposure through collective investments such as funds and investment trusts. While we saw increased international trading for those with direct shares in the first half of this year, some investors may decide to take a closer look at their domestic allocation to UK companies. Female customers have an average of 83% of their direct equity exposure in UK companies, as do 80% of male customers. Either way, customer portfolios are holding up well, demonstrating the benefits of having a diversified portfolio.”

Moira O’Neill continues: “Our youngest investors continue to perform strongly across all time periods, with portfolios that finely balance investments across the risk spectrum. Young investors typically have a longer time horizon to make their money work harder for them – meaning that they can afford to take on more risk.”

Median average performance by age band between 1 January 2020 – 30 September 2021

Wealthy accounts

Those with million pound-plus accounts have outperformed all other asset bands over all time periods, up 19.61% over 21 months, 24.9% over 12 months, 10.93% since the start of 2021, 8.06% over 6 months and 1.79% in Q3.

Those with £1 million-plus accounts have the highest investment trust exposure by asset band (25.1%) and the lowest cash weighting (5.8%).

Gender

Women performed slightly better than men in Q3 (1.67 versus 1.49%) and over the six-month period to 30 September 2021 (7.29% versus 6.88%), possibly resulting from a higher exposure to investment trusts. Investment trusts accounted for 24.9% of female portfolios and 19.3% for men.

However, men fared a little better over the year to 30 September 2021 (10.51% versus 10.46%), over the past 12 months (24.29% versus 23.44%) and 21 months (11.23% versus 10.83%).

Top holdings trends

Scottish Mortgage (LSE:SMT), Alliance Trust (LSE:ATST) and Fundsmith Equity remain favourites among all age categories, while variants of the Vanguard LifeStrategy range featured in the top 10 most-held investments by value across the board – bar those 65+ (on average).

Among stocks, Tesla (NASDAQ:TSLA) remains popular, featuring in the top 10 bestsellers among those aged 18-24, 25-34, 35-44 and 45-54.

Lloyds Banking Group (LSE:LLOY), Royal Dutch Shell (LSE:RDSB) and GlaxoSmithKline (LSE:GSK) were among the most-favoured among those aged 55+.

Regions

interactive investor customers based in Scotland performed best in Q3 2021, up 1.89%.

Over the year to 30 September 2021, those living in the Isle of Man performed strongest, (11.06%), ahead of North East England (10.98%) and East Midlands (10.89%). Over the past 21 months, the Channel Islands was the best-performing region (13.45%).

*ii customer performances quoted are median values to avoid the influence of outlier performance skewing the data.

The performance is calculated using the Time Weighted Rate of Return with returns calculated before each money transaction, then the results compounded over the reporting period. The time-weighted rate of return (TWR) is a measure of the compound rate of growth in a portfolio. It eliminates the distorting effects on growth rates created by inflows and outflows of money.

Then median averages are calculated independently for each group we analysed – so that outlier performances did not skew the results.

Index performance, unless otherwise stated, is ii using Morningstar, total return in GBP, to end September 2021.

Portfolio values under £20,000 were stripped out to keep the sample representative of ii’s core customer base.