IG Smart Portfolios: two years old and performing well
We launched IG Smart Portfolios two years ago with the goal of bringing affordable investing to our clients. Two years on, find out how our portfolios are performing vs. the competition.
IG was founded in 1974, but our share dealing and investment services are still fresh faced. When we launched IG Smart Portfolios two years ago, it was done on the premise that investors deserved a better and more convenient type of long-term investment product than that widely available in the market.
An environment of low prospective returns for bonds means that costs really matter – it makes no sense to pay 1.5% or more in fees when a 10-year UK Government Bond yields just 1.3%. Paying a platform charge to own a fund and various levels of fund manager fees can really eat into your long-term returns.
Our portfolios are designed to reduce investor costs to the bare minimum, charging low fees and partnering with BlackRock for asset allocation knowledge, while using technology to deliver the same robust asset allocation to a client, whether they have £2,000 to invest or £2 million.
How have the portfolios performed?
Investment conditions have been challenging, notably in the last quarter (Q4) of 2018, but overall, we have been pleased with how the portfolios have performed. The chart below compares returns with annualised volatility, illustrating that the portfolios are genuinely offering different risk and return profiles with the more equity exposed portfolios benefitting most from the recent market rally.
However, it takes a drawdown chart to show this best. the chart below shows the maximum peak to trough loss than an investor in our five risk profiles would have suffered since our portfolios were launched. The Aggressive portfolio may have performed best, but the maximum drawdown in December was much sharper than the Moderate and Balanced profiles.
Investors with less risk tolerance, or a shorter time horizon, should always take a more cautious approach as forced selling at market bottoms is the ultimate investment error.
Smart Portfolios vs the competition
Over the long run it is our firm belief that a combination of low costs and sensible asset allocations will give your investments the best chance to thrive. To assess this, our portfolios are benchmarked to the Asset Risk Consultants Private Client Indices (ARC), a firm that aggregates real after-fees portfolio returns for the UK wealth management industry - this includes providers such as Coutts, Schroders, St James Place and UBS.
To date Smart Portfolios are ahead by between +1.2% and +2.7% on a net of fees basis.
|28 February 2017 to 28 February 2019|
|Moderate||ARC Sterling Cautious PCI||2.1%||0.9%||1.2%|
|Balanced||ARC Sterling Balanced Asset PCI||4.9%||2.2%||2.7%|
|Growth||ARC Sterling Steady Growth PCI||6.6%||4.8%||1.7%|
|Aggressive||ARC Sterling Equity Risk PCI||8.2%||6.4%||1.7%|
Source: IG Group, Asset Risk Consultants (ARC), Includes estimated performance for the ARC Private Client Indices in January and February 2019.
How have they done this? Our analysis shows that lower headline management fees have helped, but also the way our portfolios are managed is different to the traditional space. Many investment managers use actively managed funds and alternative investments, which aim to have uncorrelated returns with conventional investments, however it’s our belief that using low cost exchange traded funds (ETFs) will deliver more consistent returns over time.
In addition, while the risks within our portfolios are constantly analysed and assessed, the asset allocations change infrequently which reduces the temptation to try and time the market. We saw a sharp sell-off in the last quarter of 2018, followed by a rebound at the start of 2019; reducing risk as the markets fell would not have added any value unless timed to perfection.
This is the crux of our offering; globally diversified portfolios, strategically invested for the long term with costs kept to a minimum. We hope to be able to look through the market noise in the months ahead.