Your IndustryAug 18 2017

Robo-adviser worst performer in fund returns test

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Robo-adviser worst performer in fund returns test
ByDavid Thorpe

Active fund management beat passive and both outperformed the robo-adviser over the past six months, according to data from research firm Fundscape.

The firm selected a range of active and passive funds, and a portfolio run by robo-adviser Moneyfarm, and examined their performance over the six month period from 2 February.

Fundscape looked at 20 products. The returns achieved, net of fees, ranged from 10.2 per cent from the best best performer, the Royal London Sustainable World fund, to the worst, a 3.46 per cent return achieved by the Moneyfarm portfolio.

Fundscape's test subject were: “One robo-adviser (Moneyfarm), one active fund of funds (Architas MA Active Progressive), two active multi-asset funds (MI Hawksmoor Vanbrugh and Royal London Sustainable World), and one passive fund of funds (Vanguard LifeStrategy 80 per cent equity). Last but not least we put together two portfolios, one active and one passive, to act as control portfolio.”

On its findings, Fundscape reported overall, the active portfolios generally performed better than the passive ones.

"Only the MI Hawksmoor Vanbrugh - which returned 4.5 per cent - did worse [than the passives]. Compare and contrast to the Vanguard LifeStrategy 80 per cent fund, a blend of Vanguard index trackers and one of the cheapest investment solutions on the market - which returned 4.36 per cent. It has undoubtedly been affected by the performance of component indices."

Last in the list was Moneyfarm.

"We picked Moneyfarm because it accepts small investments and its minimum investment is £50. It also doesn’t charge an admin fee for holdings below £10,000, so only ETF charges have been applicable,” Fundscape stated.

Fundscape acknowledged that six months is a shorter than ideal time period over which to judge the efficacy of any investment strategy, and believe three to five years is a more appropriate time period to hold an investment.

Richard Flax, chief investment officer at Moneyfarm said: 

This research involves both active and passive funds with differing asset classes over a short time horizon, the benefits of lower fees that often come with passive investments appear over a longer time horizon. We encourage our customers to approach their investment as a medium-long term decision, with a timeframe of over 3-5 years suggested to begin to effectively evaluate results. We are committed to managing and growing a user’s wealth over life, not just over six months.  

“As the chosen Moneyfarm portfolio in this research is only 40 per cent equity and is pitted against others that are 80 per cent, a difference in short-term performance is unsurprising. The performance of our highest risk level portfolio was 4.4% (net of fund costs as per the research) over the same period with 70 per cent equity exposure.