The UK’s Top 5 Robo-Advisors by Returns

The robots are rising!

Fortunately, they are not actually really robots and their rise is more benevolent than ‘world domination-ey’. It’s also, still, by human design.

Over the past few years a rapidly accelerating flow of capital has been pouring into digital investment platforms that are going some way to replacing traditional IFAs by offering investment portfolios tailored to the personal circumstances of investors.

It is these digital investment platforms that are known as ‘robo-advisors’.

In the UK alone the value of capital under robo-advisor management recently passed the £1 billion mark. Globally the total is $200 billion and by 2020 some current projections anticipate the robots will have enticed some $8.1 trillion into their digital coffers.

That’s twice the value of all the capital currently invested in ETFs, the recent darling of the investment world.

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Robo-Advisors Stepping up to the ‘Advice Gap’ Breach

The staggeringly quick dawn of the robo-advisor era in retail investment has been ushered in by the equally pacey demise of the previous empire – IFAs.

Until relatively recently, private individuals with limited knowledge of investments and financial markets relied predominantly upon the expertise of certified independent financial advisors (IFAs).

IFAs provided ‘free’ advice and made money via commissions on their clients’ investments.

However, in the UK, this business model was largely torpedoed in one direct hit when a section of new regulation called the Retail Distribution Review (RDR) banned these commission on the grounds that they created a conflict of interests for IFAs.

IFAs were forced to charge upfront fees for their services which has put off the majority of smaller investors and savers.

The second front in the robo-advisors’ march to capturing the retail investment pound has been the digital revolution.

With particularly younger generations now used to ‘banking on the go’ and making online purchases, the easy digital format of robo-advisors is both a natural and attractive choice.

Rather than taking the time to go and visit an IFA to take you through a questionnaire to profile their personal circumstances and put them into a suitable but generic invest portfolio, why not just do the same thing online at a fraction of the price?

The average IFA charges somewhere around £1500 to advise on the investment of a £60,000 portfolio. Robo-advisors charge less than 1% as they don’t take home a generous salary and are not limited to how many clients they can work with by the hours in the day.

But Do Robo-Advisors Offer Good Investment Advice?

The fact is that it only makes business and practical sense for an IFA to really put time and effort into customising a portfolio for higher net worth clients.

Smart, safe-ish investment options for smaller portfolios of up to a few hundred thousand pounds fall into fairly generic categories of investment types based on risk appetite, tolerance, timelines and value.

Human investment experts create and manage a selection of these portfolios.

The robo-advisor is simply the digital platform that streamlines the client onboarding process and allows users to conveniently keep track of their portfolio through user friendly dashboards and information.

As such, there isn’t really any fundamental reason why for most retail investors a robo-advisor investment portfolio should not perform just as well as a traditional IFA-advised portfolio. And over the few years robo-advisors have been on the market that has proven to be the case.

However, with a human element still ultimately behind robo-advisor investment portfolios, it is natural that there has been some differentiation in results.

So, which UK-based robo-advisor brands have delivered the best returns on their client’s investments?

We rank the top five here. It should be noted that while of interest, robo-advisor returns do not have enough historical track record to really be statistically relevant, and past results is not an indicator of future performance.

We’ve also not had a financial markets slump since the beginning of the dawn of robo-advisors.

How well a portfolio fairs in limiting losses when things go wrong is at least as important as returns during the good times when it comes to longer term average performance. And it’s performance over 5, 10, 20 years or longer that really counts when it comes to investment.

How robo-advisors have performed on returns until now is akin to the position of runners after 100 or 200 metres in a 3000 metre race.

It’s entertaining to watch but doesn’t necessarily mean all that much! A runner hugging the middle of the pack may be doing so as part of their whole-race strategy and still come out comfortably in front at the finishing line.

This is also not by any means a ‘real’ league table.

Some UK robo-advisors have been around for a few years now and some barely a year.

Different robo-advisors also have narrower and wider selections of portfolio based on investment capital value and risk level. They also have slightly different fee levels which will make some impact on returns and have not been considered here.

What we’ll do here is simply provide a brief overview of performance as far back as companies have been operating and published results.

This is also not an exact comparison as different companies have published results over differing time-lines, often due to the fact they are such new operations.

Consider this as a rough overview of performance with the companies listed in no particular order of achievement.

1. Nutmeg

Nutmeg offers 10 different portfolios along a risk tolerance scale starting at 1., whose aim is to ‘preserve capital and minimise potential of loss.

As this is also the stated aim of portfolio 2, we group them together and take the average. This is also the approach we’ll take for the remainder of the 10 portfolios:

Nutmeg 3 Year Returns (31.3.14-31.3.17)

Portfolio NumberAims of PortfolioAvg. Annualised Return
Portfolios 1 and 2Preserve capital and minimise potential loss1.85%
Portfolios 3 and 4Aim for slow and steady growth3.4%
Portfolios 5 and 6Aim for moderate growth without extreme volatility4.6%
Portfolios 7 and 8Aim for higher growth by accepting higher volatility6.85%
Portfolios 9 and 10Aim for high growth by accepting very high volatility8.9%

2. Moneyfarm

Moneyfarm have a shorter history than Nutmeg and have published results starting from January 2016 until now (July 2017).

The company offers 6 different portfolios of ranging risk levels, with 1 the lowest risk. Results are also broken down into those for portfolios of less and more than £50,000, with diversification greater for £50,000+ portfolios.

Here we’ll take annualised returns for 2016 as the benchmark:

Moneyfarm 1 Year Returns (01/16-01/17)

Portfolio NameAvg. Annualised Return
Risk Level 1 4.9%
Rick Level 28.1%
Risk Level 314.8%
Risk Level 414.7%
Risk Level 513.6%
Risk Level 614.7%

3. True Potential Portfolios

True Potential Portfolios have been operating since October 2015. The returns listed below were published by the company for the 2016/17 tax year and cover the ten different risk levels of portfolio offered:

True Potential Portfolios (2016/17 Tax Year)

Portfolio NameAvg. Annualised Return
Defensive7.4%
Cautious11.85%
Cautious Income13.61%
Balanced16.93%
Balanced+17%
Balanced Income15.12%
Growth20.27%
Growth+19.28%
Aggressive22.8%

4. Wealthify

Wealthify published their first 12-month results in February of this year with the period covering February 12th 2016 to February 11th 2017.

The company offers 5 different portfolio risk levels ranging from cautious to adventurous. The returns published by Wealthify state that they are net after all fees have been taken out.

As the other companies covered here have not explicitly stated this to be the case we can probably presume that the figures given are gross of fees.

Wealthify Portfolio returns (12/02/16-11/02/17)

Portfolio NameAvg. Annualised Return
Cautious8.86%
Tentative11.86%
Confident18.28%
Ambitious22.25%
Adventurous28.5%

5. Scalable Capital

Because Scalable Capital has not been operating for a full year, under FCA regulations the company cannot yet publish performance data.

If you have have used any Robo-Advisors, let us know of your experiences in the comments.

John Adam

John Adam co-founded iNVEZZ.com, a news, analysis and comparison portal for retail investors. iNVEZZ was acquired by Investoo in 2017.