Pre-Packed Investment Portfolios on the Rise but Who Are They For?

The ISA and SIPP deadline is upon us and any portion of annual tax haven allowances not used by midnight April 5^th will be lost. The caveat to that is in the case of SIPPs unused portions can be rolled over for up to three years. With that in mind, it’s decision time for those who plan investing what they can online over the next 24 hours or so. What are you going to invest that final boost to your ISA or SIPP in? The recent boom in robo advisor platforms that offer ready-made portfolios has added a new choice to the mix over the past couple of years. In today’s edition of The Telegraph, Boring Money’s Holly MacKay takes a look at the recent performance of ‘off the shelf’ investment portfolios offered by the main providers on the market and asks the question what kind of investor these products suit best.

Robo advisors are online platforms that walk investors through a simple questionnaire designed to profile them as an investor. Investment budget, goal, timescale, appetite for and tolerance to risk are quantified and a ready-made investment portfolio to be invested into offered on that basis. These portfolios are tweaked over time but the investor has a passive role and relies on the algorithm and human oversight to keep their funds performing well in a strong market and limit damage in a bear market.

The investment market has tended to assume that off-the-shelf investment portfolios are for beginner investors. Those who have been DIY investing since before the rise of the robots are used to choosing and monitoring a basket of shares, funds and possibly bonds themselves. Most probably continue to do so under the feeling that their level of experience places them beyond the ‘beginner’ target market of ready-made portfolios.

MacKay asks the pertinent question if having some experience and knowledge in choosing your own investment portfolio means you should. Is the assumption the easier option of off-the-shelf portfolios provided by robo-advisors only for beginners? She challenges hobbyist investors to be really honest with a self-appraisal on how their performance matches up against professionally constructed portfolios. A crucial element to this is to consider how much risk they took to achieve returns, if superior. The past couple of years have been particularly kind to equity investors but how will you do in a bear market if considerable risks were taken to achieve returns? MacKay believes that the trend of investors tinkering and stock pick themselves rising proportionally with their experience and knowledge is behaviour that should be challenged. Is it really to the advantage of your portfolio’s eventual returns?

Robo-advisors could also be a good choice for more experienced investors. If they deliver good returns why risk doing it yourself? Not to mention the time involved. The biggest hurdle to being able to make a good judgement on if a ready-made portfolio is a pertinent investment choice is the lack of history providers can show. Even the oldest robo-advisors only have a few years track record and are yet to face a real bear market.

Comparing ‘mid-risk’ portfolios with equities weightings of between 50% and 60% between ready-made portfolio providers shows average 2017 returns of 7%. However, there was divergence between 4% and 9.2%. Last year’s three best performers are highlighted by MacKay as the evestor Portfolio 2, the Santander Multi Index Fund 3 and Vanguard Life Strategy 60pc, which returned between 8.4% and 9.2%.

With robo-advisor platform charging relatively low minimum investment levels, the suggestion is made to keen DIY investors to put some of their capital into a ready-made portfolio and the rest into their own. Run a competition against the easy option for a few years and if you don’t do considerably better yourself, is it really worth the trouble?