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Grade Your Portfolio

The Best Investment Portfolios

Topic: Editors Picks Best Investment Portfolios 7 October 2021

In this report, we analyse the performance of ready-made investment portfolios offered by AJ Bell, Hargreaves, Tilney Bestinvest, Close Brothers, Coutts,  Interactive Investor, St James's Place, Smith & Williamson, and Yodelar Investments.

There is no shortage of pre-constructed investment portfolios available. As detailed in this report these portfolios offer investors convenience but in many cases a convenience that can cost dearly in the long run. Such a large proportion of ready-made portfolios contain poor performing funds that have consistently delivered below average returns.

It is important for investors to have a clear understanding and knowledge of the underlying funds within such portfolios, their relevant performance, and the track record of specific fund managers.

To provide an insight into the comparative performance of popular portfolios, we analysed a total of 69 portfolios that fit within the general risk categories of cautious, balanced, moderately adventurous or adventurous. These portfolios are managed by some of the UK's largest investment brands including St. James's Place, Tilney Bestinvest, Coutts, Close Brothers, Interactive Investors, AJ Bell, Smith & Williamson and Hargreaves Lansdown.

Over time, investment portfolios with a lower level of risk will achieve returns that are below that of a portfolio with a higher risk model. However, as our analysis identifies, this is not always the case, and the difference between similar risk portfolios from different providers can be substantial.

 

About This Analysis

In this report, we feature the performance and risk rating of 69 investment portfolios from some of the largest and most respected investment brands in the UK. We also provide a comparison between each portfolio based on their risk rating which identifies the portfolios and providers with above average or below average performing portfolios. At the end of the report, we compare all providers in an easy to read table.

 

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AJ Bell Portfolios

AJ Bell has a smaller range of ready-made portfolios than most of its competitors. They provide 4 portfolios ranging from a risk rating of 4 for their cautious portfolio to a risk rating of 7 for their adventurous portfolio. As identified in the performance comparison table, the 1, 3 & 5 year returns of the AJ Bell portfolios was lower than many of their peers, with their Adventurous portfolio returning 1 year growth that was lower than all but one of the 15 similar risk-rated portfolios analysed for this report.

AJ Bell Portfolios

 

Bestinvest Portfolios

Bestinvest Ready-made Portfolios are built by the investment team at Tilney, who are their sister company that looks after more than £20 billion of investor money. These portfolios are again aimed at investors seeking convenience through ‘off-the-shelf’ style portfolios that have a diverse asset allocation model and meet a defined risk model.  

There are seven portfolios available; each one is designed for a different kind of investor – such as those who are investing to grow their savings, wish to invest ethically or to receive a regular income. 

Each of the 7 portfolios have been analysed for growth over the past 1, 3 & 5 years.

Bestinvest Readymade Portfolios

 

Close Brothers Ready-Made Portfolios

To provide investors with convenient access to ready-made diversified investments, Close Brothers have developed a selection of multi-asset funds.

There are a total of 11 of these multi-asset funds that cover a distribution technology risk range between 4 and 7. Through these wide-ranging portfolios, Close Brothers aim to attract investors who value convenience but as identified in our performance analysis their portfolios lag behind many of their competitors when it comes to performance.

Close Brothers Readymade Portfolios

 

Coutts Investment Portfolios

Coutts offer investment portfolios via their managed Personal Portfolio Funds (PPF) range. These 5 portfolios are actively managed but they are primarily made up of passive funds. Combined, there is almost £1.5 billion under the management of these 5 Coutts portfolios with the PPF 3 their largest to date.

Coutts Personal Portfolios

 

Hargreaves Lansdown Portfolio Plus

Hargreaves Lansdown have also put together a range of readymade, risk-rated portfolios that have proven to be popular with many investors who do not wish to seek financial advice but lack the time or expertise to manage their investments effectively. Each of these portfolios are made up entirely of Hargreaves Lansdown’s own range of Multi-Manager funds, which as we have identified have struggled for competitive performance.

HL Portfolio Plus

 

Interactive Investor Model Portfolios

Interactive Investor provides access to 5 ready-made portfolios, each of which assuming a different level of risk. The portfolios are designed to make selections easier for investors, these five portfolios offer either growth or income options, with a choice of actively managed investments or low-cost passive funds. 

They comprise our highest conviction choices from the whole fund universe and are built upon a proven selection process. Created with an asset allocation to global equities of between 80% and 100%, they are designed for investors who have at least five years before they need the money.

ii Portfolio Description

Interactive Investor Portfolios

 

St. James’s Place Portfolios

St. James’s Place has a range of 9 pre-set investment portfolios that are built using their own brand of funds. The portfolios are weighted to fit designated risk criteria that range between a Distribution Technology risk rating of 4 and 8 out of 10.

SJP Portfolios

 

Smith & Williamson Investment Portfolio

Smith & Williamson have in excess of £21 billion of assets under their management. They have a range of services and investment products with their managed portfolio service among their most utilised. 

There are 6 different types of portfolios within the Smith & Williamson Managed Portfolio range, each of which represents a different investment risk tolerance.

Smith & Williamson Managed Portfolios

 

Yodelar Investment Portfolios

Investing is about maximising returns within an acceptable level of risk and Yodelar portfolios are designed to deliver just that. They have been built to follow the asset allocation model as defined by the UK's leading asset allocation and risk profiler and contain a blend of consistently top-performing funds. Although past performance may not guarantee future success, it is a vital metric that is often overlooked as consistent performance figures do not lie, and quality fund management will express itself in above average and top quartile returns.

Each Yodelar portfolio has been created to fit a particular risk profile. This is achieved by balancing the weighting of assets across each portfolio as determined by a process of asset allocation that has been defined by Distribution Technology the leading risk profiling and asset allocation research company in the UK. 

Lower risk portfolios hold a greater weighting in lower-risk assets such as cash or bonds but as the risk tolerance rises so too does the weighting in typically higher growth but riskier assets such as Japanese and emerging market equities. 

Our investment approach ensures that the funds used to achieve the correct balance in each portfolio are among the consistently top performing funds available in each sector.

Yodelar Portfolios

**ESG stands for Environment, Social & Governance. To discuss our ethical offering use the online chat at the bottom of the page, and book a call with one of our advisers.

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The Main Investment Profiles

The level of investment risk suitable to investors can vary significantly, and depending on your risk profile the potential returns can differ greatly. One of the most widely used investment risk models in the UK is that of risk profiler Distribution Technology where a risk rating of 1 is suitable for the most risk-averse investor to a risk rating of 10 which is suitable only for the most adventurous investors. However, this risk spectrum is often broken into 5 main investment profiles. Although the names for these profiles can vary, they are commonly known as – Defensive, Cautious, Balanced, Moderately Adventurous and Adventurous.

Risk Model

 

Defensive Investors - are content with accepting the potential for lower returns in exchange for greater protection against loss. (Risk 1-2)

Cautious Investors - follow a low-risk approach to investing by prioritising security over portfolio growth. (Risk 3-4)

Balanced Investors - have a ‘middle of the road’ investment philosophy and are willing to accept a moderate level of risk in the pursuit of growth. (Risk 5-6)

Moderately Adventurous - are prepared to accept a higher than average level of risk in the pursuit of greater returns. (Risk 7)

Adventurous Investors – are willing to accept a high degree of risk with the potential for greater losses in return for the opportunity of obtaining higher investment returns. (Risk 8)

For all investors, it is vitally important to complete a detailed risk profiling analysis in order to understand what risk classification of a portfolio is the most appropriate. Investor risk profiling is at the heart of investment advice, and without proper knowledge of an investor’s goals, time horizon, liquidity needs, and risk aversion, it is impossible to recommend suitable investments or build efficient long-term investment strategies for an investor. 

As the difference in the quality of similar risk-rated portfolios can be significant, identifying the most suitable to meet your objectives will play a huge part in whether or not your long term investment objectives are met.  

Over time, investment portfolios with a lower level of risk will typically achieve returns that are below that of a portfolio with a higher risk model. However, as our analysis identifies, this is not always the case, and the difference between similar risk portfolios from different providers can be substantial.

 

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The Best Cautious Portfolios

From the 22 portfolios with a cautious risk rating of 3 and 4, the average growth over the past 1, 3 & 5 years was 9.88%, 17.28% and 27.62% respectively. 

11 of the portfolios delivered returns that were below the 1 year average including all 3 SJP portfolios - SJP Conservative (8.27%), SJP Immediate Income (7.38%) and SJP Defensive (4.90%).

5 portfolios managed to return above-average growth for all 3 periods, 4 of which were Yodelar Investment portfolios along with the Smith & Williamson Defensive Income Portfolio. The Bestinvest Sustainable Portfolio has less than 5 years of history but over the past 1 & 3 years, it also outperformed the average set by the 22 Cautious portfolios that we analysed.

Over the past 5 years, the Yodelar High Cautious portfolio was by some way the top performer, returning 5-year growth that was more than double the average and over 4 times greater than the SJP Defensive portfolio.

RISK RATING 3-4

 

Balanced Portfolio Performance

We analysed a total of 28 portfolios that had a balanced risk profile of 5 and 6 and identified that the average returns of these portfolios over the past 1, 3 & 5 years were 16.13%, 23.68% and 42.45%. 

In total, 8 of these portfolios delivered returns that were above the average for each period. These 8 portfolios were from Yodelar Investments, Smith & Williamson and Bestinvest. The portfolio with the lowest returns over the past 1 and 5 years was the Close Sustainable Bond portfolio which could only manage growth of 3.76% and 18.76% for these periods, well below the average of 16.13% and 42.45%. In contrast, the Yodelar Mid Balanced portfolio returned growth of 28.70% and 101.86% over the same period.

RISK RATING 5-6

 

Moderately Adventurous Portfolio Performance

Similar to the cautious and balanced range of portfolios, the Yodelar Investment balanced portfolios were also the top-performing portfolios, with the Interactive Investors Ethical Growth and Interactive Investor Active Growth portfolios also delivering strong growth returns over the past 1, 3 & 5 years. In contrast to their Ethical Growth and Active Growth portfolios, the Interactive Investor Low-Cost Income portfolio consistently underperformed and was the worst performer over the past 5 years.

RISK RATING 7

 

Adventurous Portfolio Performance

Similar to the cautious and balanced range of portfolios, the Yodelar Investment balanced portfolios were also the top-performing portfolios, with the Interactive Investors Ethical Growth and Interactive Investor Active Growth portfolios also delivering strong growth returns over the past 1, 3 & 5 years. In contrast to their Ethical Growth and Active Growth portfolios, the Interactive Investor Low-Cost Income portfolio consistently underperformed and was the worst performer over the past 5 years.

 

Why Similar Risk Portfolios Have Different Returns

How a portfolio performs can vary greatly based on the asset allocation model they follow and the quality of the funds that are used to represent the asset classes within the chosen model.

Although there are many different types of asset allocation models available, they each essentially balance the weighting of assets to create a portfolio that fits the desired risk category - and the quality of funds that are used to represent these asset classes can have a significant influence on the portfolio's overall performance.

The asset allocation of a portfolio will typically require a percentage of its underlying holdings to be spread across several regions such as the UK, US European equities.  It is the quality of the funds chosen to represent these asset classes that will have a significant bearing on the returns your portfolio will generate. 

For example, the SJP Defensive portfolio had the lowest 5-year returns (7.81%) from the 22 portfolios analysed that had a similar risk rating. By looking at the underlying funds that make up this portfolio it becomes apparent the portfolio is constructed using funds that have a history of underperformance within their respective sectors.

SJP Defensive Portfolio

 

For any investment portfolio, how well it performs is dictated by its asset allocation and risk model as well as the quality of funds that make up the portfolio. 

There are approximately 3,000 investment funds available to UK investors that have received a sector classification from the industry trade body the Investment Association. From these 3,000 funds, 20% have managed to consistently outperform at least half of all competing funds within their sectors over the past 1, 3 & 5 years, and have thus received a high quality 4 or 5-star performance rating from Yodelar. There is no shortage of quality funds across all asset classes and having the freedom to make informed choices can help improve portfolio efficiency and overall performance.

With access to funds across the whole market and with no allegiance to any fund manager, Yodelar Investments have an unrestrictive approach to investing that allows the freedom to make fund choices based on quality and suitability, which is key to the high level of portfolio efficiency and overall performance.

Discover More About Yodelar Investments >>

 

Top Quality Portfolios

The balance of investments across different asset classes is the primary driver of portfolio returns, but the funds used to create the correct balance are essential to maximising portfolio growth and efficiency.  

All sector classified investment funds are made up of a selection of holdings in companies that fit within the fund's sector classification. For example, funds classified within the UK All Companies sector are required to invest at least 80% of their assets in UK equities that have a primary objective of achieving capital growth. The remaining 20% can be spread across other asset classes that the fund manager deems appropriate to the fund’s overall objectives. The spread of this remaining amount can have numerous implications which we carefully analyse when composing our portfolios. 

Formulating the appropriate blend of investment funds to fit a portfolio’s specified asset allocation model and optimise growth potential is a complex process that requires thorough analysis. It is an important part of how Yodelar Investment portfolios are built and it reveals an attention to detail that helps to improve portfolio efficiency that is visible from the various performance comparisons in this report.

As identified in this report, the difference in performance between similar risk portfolios can be significant, and this difference can compound over time and result in costly missed opportunity growth for investors. As shown by the performance of Yodelar portfolios, having unobstructed access to the entire investment market combined with efficient processes investors can significantly benefit from.

 

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