Interactive Investor customers have comfortably outperformed a commonly used benchmark for private investor portfolios over the past six-and-a-half years, according to the latest ii Index.
The average Interactive Investor (ii) customer portfolio has grown by 59.1% since the start of 2020, compared with a 49% return from the Investment Association Mixed Investment 40-85% Shares sector.
That means ii customers have beaten the benchmark by more than 10 percentage points over the period. The IA sector is used by ii as a comparison because, like many private investor portfolios, it contains a mixture of shares, bonds and cash.
Perhaps more significantly, ii customers haven’t just outperformed over one carefully selected period. They have beaten the benchmark over every timeframe measured.
Over five years, the average ii portfolio returned 41.8%, versus 32.4% for the benchmark. Over three years the figures were 46.9% and 38.1% respectively, while over the latest year ii customers returned 19.4%, compared with 17.1%.
Why do interactive investor clients make so much money?
The data suggests that diversification rather than aggressive stock picking may be one of the reasons ii investors have performed well.
Global tracker funds feature prominently among customers’ most popular investments, including the Vanguard FTSE Global All Cap Index, HSBC FTSE All World Index and Vanguard FTSE All-World ETF. Active investments such as Scottish Mortgage, Alliance Witan and F&C Investment Trust are also widely held.
ETFs are becoming increasingly important too. They now account for 13% of the average ii portfolio, up from 12% in the previous quarter. Among investors aged 25 to 34, ETFs account for almost a quarter of portfolios.
Funds make up another 29% of the average portfolio, while direct equities account for around 30%.
Investors haven’t abandoned defensive assets either. Cash represented around 8% of the average portfolio in Q2, while government bonds and money-market funds also feature prominently among popular holdings.
Royal London Short Term Money Market is widely held, while low-coupon UK government bonds T26A and TN28 are also popular. ii says investors are attracted to the gilts partly because capital gains on gilts are exempt from capital gains tax.
Middle-aged investors are the most profitable
The strongest long-term returns haven’t come from the youngest investors taking the most risk.
Investors aged 35 to 44 produced the best six-and-a-half-year performance, returning 63.4%, closely followed by 45 to 54-year-olds at 62.8%. Investors aged 25 to 34 returned 61.7%, while those aged 65 and over returned 56.6%.
Over the most recent year, however, younger investors came out on top. The 18-to-24 age group returned 21.1%, ahead of every other age category.
Camilla Esmund, Head of Investor Campaigns at Interactive Investor, said the figures demonstrate the benefits of consistent investing and diversification, particularly during financially demanding periods of life.
The results also suggest that keeping costs under control has played a role, with ii highlighting its customers’ focus on investment fees.
A simple approach appears to be paying off
There is an important distinction here: ii customers haven’t necessarily “beaten the stock market”. The comparison is against the IA Mixed Investment 40-85% Shares sector rather than an equity index such as the FTSE 100 or S&P 500.
Nevertheless, the figures provide an interesting insight into how DIY investors have performed against professionally managed mixed-asset funds.
Rather than constantly trading or attempting to predict which market will perform best next, many of ii’s most popular holdings point towards a relatively straightforward strategy: own globally diversified investments, combine passive and active funds, keep some defensive assets and remain invested for the long term.
So far, that approach appears to be working. Since January 2020, the average ii customer has turned £10,000 into roughly £15,910, compared with around £14,900 from the benchmark, a difference of just over £1,000 for every £10,000 invested.
Past performance, of course, does not guarantee future returns, but ii’s latest figures provide a useful reminder that private investors don’t necessarily need complicated portfolios to compete with professional fund managers.
Richard is the founder of the Good Money Guide (formerly Good Broker Guide), one of the original investment comparison sites established in 2015. With a career spanning two decades as a broker, he brings extensive expertise and knowledge to the financial landscape.
Having worked as a broker at Investors Intelligence and a multi-asset derivatives broker at MF Global (Man Financial), Richard has acquired substantial experience in the industry. His career began as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson), following internships on the NYMEX oil trading floor in New York and London IPE in 2001 and 2000.
Richard’s contributions and expertise have been recognized by respected publications such as The Sunday Times, BusinessInsider, Yahoo Finance, BusinessNews.org.uk, Master Investor, Wealth Briefing, iNews, and The FT, among many others.
Under Richard’s leadership, the Good Money Guide has evolved into a valuable destination for comprehensive information and expert guidance, specialising in trading, investment, and currency exchange. His commitment to delivering high-quality insights has solidified the Good Money Guide’s standing as a well-respected resource for both customers and industry colleagues.
