It’s been three years since we started the Great British Wealth Off experiment. We started it because the press is always awash with articles about the pros of passively managed funds and robo-advisers, and the cons of active investment and even seeking financial advice.
As a result of these all-or-nothing type stories, some investors worry about the choices they have made. Others have unrealistic expectations of long-term investment, and yet others, confused, do nothing and leave their money to languish in deposit accounts at rock-bottom interest rates.
We wanted to show investors that there is no wrong or right way to invest. Passive and active investments are equally valid. To illustrate this, we ran the Great British Wealth Off for three years. (Click here see the very first GBWO blog).
We invested in two active multi-asset funds (Royal London Sustainable World and the more cautious MI Hawkmoor Vanbrugh), a passive funds of funds (Vanguard LifeStrategy 80%), and an active funds of funds (Architas MA Active Progressive), active and passive control portfolios, and last but not least, a robo-adviser, Moneyfarm.
Since the way you invest can attract different fees, we invested in three different ways: directly with the fund manager, through a DIY investment platform and through an adviser using an adviser platform. As the robo-adviser can only be invested in one way, we had 19 portfolios in total. They were all invested on 2nd February 2017 (before you ask, I forgot to invest on 1st).
The winners and the losers
A lot can happen in three years, but Brexit and other geopolitical concerns meant there was substantially more stock-market volatility. Ironically, it was an unknown virus and not these concerns that led to the stock market falling by 25% in 2020.
Some people might be panicking at the sheer drop, but the worst thing you can do right now is withdraw your money. People who panicked and pulled out during the global financial crisis in 2008 to protect their money, crystallised their losses and then lost out on the next 10 years of stellar growth. The stock market has risen by 84% in that time – so that’s a lot to lose out on. (Click here to see how that affected my son’s investment.)
|Fund||Risk||Dec 19 (£)||Mar 20 (£)||Qtr Grth %||All Grth %|
|RL Sustainable World Direct||5||443.58||409.74||-7.6||36.6|
|RL Sustainable World, DIY plat||5||443.52||409.71||-7.6||36.6|
|RL Sustainable World, adv||5||434.55||400.71||-7.8||33.6|
|Vang LifeStrategy 80% Eq, direct||4||374.01||320.61||-14.3||6.9|
|Vang LifeStrategy 80% Eq, DIY plat||4||371.31||318.09||-14.3||6.0|
|Vang LifeStrategy 80% Eq, ad||4||363.78||311.07||-14.5||3.7|
|Active portfolio, DIY plat||4||359.91||310.86||-13.6||3.6|
|Passive portfolio, direct||4||358.02||310.53||-13.3||3.5|
|Passive portfolio, DIY plat||4||355.59||308.22||-13.3||2.7|
|Active portfolio, direct||4||357.36||307.98||-13.8||2.7|
|Active portfolio, adv||4||352.62||304.05||-13.8||1.4|
|Passive portfolio, adv||4||348.36||301.44||-13.5||0.5|
|Architas MA Active Prog, DIY plat||4||359.64||300.75||-16.4||0.3|
|Architas MA Active Prog, direct||4||354.63||296.31||-16.4||-1.2|
|Moneyfarm||6 of 7||352.39||295.98||-16.0||-1.3|
|MI Hawksmoor Vanbrugh, DIY plat||3||341.73||295.02||-13.7||-1.7|
|Architas MA Active Prog, adv||4||352.35||294.12||-16.5||-2.0|
|MI Hawksmoor Vanbrugh, direct||3||336.81||290.37||-13.8||-3.2|
|MI Hawksmoor Vanbrugh, adv||3||334.80||288.54||-13.8||-3.8|
|FTSE All Share||-||4196.47||3107.42||-26.0||-19.9|
But back to the Great British Wealth Off. The values of our investments range from £409.74 to £288.54. There is a clear and decisive winner: the actively managed Royal London Sustainable World fund, which has grown by 36% to £409.74 since the start of the experiment — a remarkable achievement given that the FTSE All Share is down 20% over the same period.
Ranked second, but some way behind in terms of performance is the Vanguard LifeStrategy 80%, a passive funds of funds, which grew by 6.9% to £320.61 — again great performance compared to the FTSE All Share’s 26% drop over the same period. Its underlying investments are index-trackers, but the mix of the investments, called asset allocation, was the key to its superior performance.
Three investments fell below the initial investment of £300 — Architas MA Active Progressive, MI Hawksmoor Vanbrugh and Moneyfarm, the robo. Moneyfarm had been at the bottom of our ranking since the beginning of our experiment. Even though my risk profile is very high, its asset allocation was simply too cautious. Nonetheless, this worked in its favour in the last three months of the experiment as it jumped into 15th place.
Hawksmoor Vanbrugh’s primary aim is to deliver returns above CPI, so the managers try to strike a balance between positive real returns and very low volatility (the fund is the 7th least volatile fund in its sector). As a result, Hawksmoor de-risked the fund in 2018, which is why its risk profile has fallen to 3. But that doesn’t seem to have given it any downside protection compared to the other riskier funds.
Wrapping it up
This three-year experiment has been enlightening and the results are far from what I expected. I expected to see a passive investment in pole position, but instead the experiment has demonstrated that an active fund can outperform the market by a country mile… even when invested through an adviser using an adviser platform.
(Some may argue that investors are better off investing directly, but it is worth remembering that financial advisers’ primary focus is financial planning and not just picking investments. That’s the very last step.)
Evangelical passive trolls will undoubtedly point out that I was lucky; the other two actively managed investments came last, and investors in these funds would have been better off in the passive Vanguard LifeStrategy 80% fund. And that’s true. But it’s also true of Moneyfarm. It’s not a simplistic active v passive decision, asset allocation — how money is spread over different asset classes, sectors and regions — can make a huge difference. That’s where the real skill is.
As I don’t want to end this experiment on a low note, I’ll keep the investments running and report on an annual basis. It will be interesting to see what the effects of the pandemic and Brexit are…