IG Smart Portfolios outperform by +7.7% on average since launch
We launched our range of ready-made portfolios, called IG Smart Portfolios, in February 2017 in partnership with BlackRock. These give UK investors access to BlackRock’s expertly managed model portfolios which have performed excellently over the previous three years.
How have the IG Smart Portfolios performed?
A three-year track record is viewed as an important milestone in the portfolio management industry, with many financial advisors or fund managers only allocating capital to strategies that have been around for more than three years.
IG Smart Portfolios now have over three-years’ worth of return data and we are extremely pleased with the returns that the portfolios have delivered for our customers.
Since our launch in February 2017, four out of our five portfolios have beaten their respective benchmarks, and by a wide margin too. Our moderate to aggressive profiles have outperformed by an impressive +8.1% to +11.9%.
If you had invested £20,000 in our balanced portfolio on day one, despite the recent impact of coronavirus on financial markets, your investment would now be worth around £23,180 – all for a management fee of under £10 per month.
The table below shows our performance against our benchmarks since we launched the portfolios and also on an annualised basis.
Figure 1: IG Smart Portfolio performance (28 February 2017 – 31 May 2020)
|Type of IG Smart Portfolio||Benchmark||IG Smart Portfolio||Benchmark||Difference||IG Smart Portfolio||Benchmark||Difference|
|Conservative||3m Libor +1%||+3.2%||+5.5%||-2.3%||+1.0%||+1.7%||-0.7%|
|Growth||ARC Steady Growth||+19.1%||+7.2%||+11.9%||+5.5%||+2.2%||+3.4%|
|Aggresive||ARC Equity Risk||+18.5%||+8.3%||+10.1%||+5.4%||+2.5%||+2.9%|
Source: IG, ARC
Our annualised outperformance against our benchmarks can be seen in the chart below too, with our moderate to aggressive profiles outperforming by between +2.8% and +3.4% per year.
Figure 2: annualised IG Smart Portfolio performance (28 February 2017 – 31 May 2020)
You can see a full breakdown of our portfolio performance here.
Going into the recent crisis our portfolios were positioned relatively cautiously after we reduced our exposure to stocks towards the end of 2019. We also added a position in longer-dated government bonds, which tend to perform well as interest rates fall.
The outbreak of coronavirus negatively impacted market sentiment, with equities falling and government bond prices rising. Our cautious approach meant that we outperformed our benchmarks during this risk-off period.
In March, we took advantage of lower equity prices by adding to existing positions in US equities and also adding risk to the portfolios in other areas, such as swapping short-term bonds for longer-term US treasuries. You can read more about these changes here.
This meant that while we outperformed in February and March while markets were falling, we also outperformed as markets recovered.
Using our growth profile as an example, the table below shows the consistent outperformance that we have achieved for our investors.
Figure 3: returns for IG Smart Portfolio 'growth' versus its benchmark, end period - 31 May 2020
|Previous 1m||3m||6m||12m||24m||Since launch|
|ARC Steady Growth||2.7%||-1.6%||-5.7%||-0.8%||-0.1%||7.2%|
Source: IG, ARC
While we are pleased to confirm this strong performance over the last three years, we acknowledge that this is a relatively short period of time relative to the average investor’s investment horizon. This is why we partnered with BlackRock – the largest asset manager in the world – who have a proven expertise in managing investment risk over the long run. Our conservative, moderate, balanced and growth profiles are based on BlackRock’s range of model portfolios that have a track record dating back to 2014, while our aggressive portfolio was built especially for our clients by BlackRock and was launched in February 2017.
Looking forwards, while it is impossible to predict future returns, we fully expect our more risk-taking portfolios to outperform those that are more conservatively positioned over the longer term. Investors are generally rewarded for taking on investment risk over time.
What are the benchmarks we use to compare our performance?
To compare the performance of our moderate, balanced, growth and aggressive profiles, which all invest in a mix of stocks, bonds and commodities, we use the range of well-respected benchmarks created by Asset Risk Consultants (ARC). These benchmarks allow investors to compare their net of fee investment returns against the average performance of well-known wealth management firms such as Barclays, Coutts and Rathbones.
IG’s most cautious portfolio – conservative – is built using bonds and cash-like securities. We currently use the 3-month LIBOR rate + 1% to compare its performance against. Since its launch, the portfolio has slightly underperformed this benchmark, due in large part to the rise in interest rate expectations in 2017 and 2018. But over the last 24 months it has performed in line with its benchmark, returning 3.7% after fees compared to 3.6% for its benchmark.
Sheltering our investors from the recent stock market storm
Over the last three years we have witnessed sustained periods of rising equity markets, but also a number of events which led markets lower.
One significant event was in the fourth quarter of 2018, when global equity markets fell significantly on fears of weakening economic data and the prospect of higher interest rates in the US. In response, the US Federal, likely realising their policy mistake, decided to backtrack and cut their policy rate, which helped to reassure investors, prompting the price of risk assets such as stocks to rise over the course of 2019.
Recently, though, global markets were shaken as the rapid spread of coronavirus effectively shut down the global economy, with US and UK stocks falling -23.4% and -20.3%, from their previous peak to the end of March, respectively. In comparison, our balanced portfolio declined by -8.9%, while our more risk-seeking aggressive portfolio fell by -16.1% over the same period.
Since then, global equity markets have staged a remarkable comeback and have nearly recovered most of their losses, largely driven by the outperformance of US stocks.
What are IG Smart Portfolios?
IG Smart Portfolios are a series of five, ready-made portfolios that invest in a mix of stocks, bonds and commodities. Each portfolio takes on a different amount of investment risk which means the expected long-term return for each portfolio differs too.
To help you work out which of the five portfolios best suits you, IG provides guidance (a form of advice) by asking you a series of questions to figure out your attitude towards investment risk. This can be a difficult to work out by yourself, which is why some investors might choose to use a financial advisor. But financial advice is expensive, and investors who have less than £500,000 to invest may struggle to find a financial advisor who is willing to work with them.
This is where online wealth managers come in. Whether you have £500 or £5 million you can easily access an expertly managed portfolio through our dedicated platform. The cost for our managed portfolio service is low, with a management fee of just 0.5% on your first £50,000. Any investments above this amount are managed free of charge, which caps our management fee at £250 per year.
For instance, an investor with £10,000 will pay £50 a year while an investor with £500,000 will pay £250 per year.
What are the best features of an IG Smart Portfolio?
There are lots of ready-made portfolios that investors can use. While IG Smart Portfolios are low cost and have seen strong returns, we believe our service offers other unique features which make them an excellent tool to use to grow your wealth over the long term.
- Risk management
When you invest in a Smart Portfolio, what is included in your portfolio and how this changes over time is driven by BlackRock’s robust portfolio management framework which identifies long-term drivers of asset class returns. Your investments are spread across asset classes to manage risk and are analysed by BlackRock’s Aladdin risk system which handles over $20 trillion in assets for the world’s largest investment firms.
BlackRock are experts in managing risk, but when it comes to comparing different investment managers, it is common for investors to focus on recent investment returns rather than the underlying investments in the portfolio.
It is vital that you look under the hood to see what your portfolio invests in. As an example, our balanced portfolio currently has a 53% exposure to stocks, but we’ve noticed that some comparison websites have pitched this against other providers’ 'balanced' portfolios, some of which currently contain over 60% in stocks. These are therefore taking on a greater amount of risk
- Fractional shares
Here at IG, we built innovative technology which means we can buy fractional shares of the exchange traded funds that are used to build your portfolio. This means that whatever amount of money you choose to invest, you’ll be fully invested and not have more than £1 in cash left on your account
- Intra-day liquidity
We use exchange traded funds to construct our portfolios since these are priced throughout the day. Our investors can choose to open, close and add funds to their portfolio throughout market hours.
More traditional funds like unit trusts and open-ended investment companies (OEICs) typically price once per day, meaning if you want to sell or buy your fund, you might be left waiting well over a day for your request to be actioned
- Custody fee exemption
Another benefit to owning a Smart Portfolio is if you have more than £15,000 invested in a Smart Portfolio, IG will waive the £24 per quarter custody fee on our share dealing platform, potentially saving you up to £96 per year