Netwealth Portfolio Performance: the First 12 Months

The end of May marked the one year anniversary for our sterling portfolios. We’re happy to report that this has been a positive period across the board for our seven Risk Levels. Despite the volatile political backdrop over the past twelve months, markets have mostly been well behaved and our portfolios have performed well. A diversified approach across regions, currencies and asset classes has been key.

Returns have been strong relative to comparable strategies run by other wealth managers, represented in Chart 2 below by the Asset Risk Consultants (“ARC”) Private Client Indices.

Climbing the wall of worry

The period under review was certainly a time when investors could find reasons to sit on the sidelines, rather than being invested. If we had been told this time last year that we would be seeing a ‘Leave’ vote in the EU referendum, a Trump presidency and Le Pen featuring in the French presidential run-off, then we might well have expected quite a different performance outcome. In hindsight however, those who remained on the sidelines missed out on what were very supportive markets for portfolio returns. This highlights how important it is to be invested appropriately for one’s time horizon. There will always be risks to investing which might make a ‘wait and see’ approach a more palatable option. However, it can prove to be significantly less profitable over time if this means missing out on periods of unexpected, positive returns.

What drove performance?

Notably, different components of the portfolios have performed well at different times, resulting in a smoother portfolio return path than many single asset classes delivered on their own. This emphasizes the importance of constructing diversified portfolios for clients. Examples include the varied reactions of different market sectors around the EU referendum, as laid out in Chart 3 below. The big oil producers and other global companies in the FTSE 100 benefited immediately alongside international stocks from their foreign earnings in June and July, while liquid property assets were marked down due to uncertainty over future demand in a less open market environment. At the same time, gilts rallied strongly in expectation of a monetary policy response to the Brexit vote, which duly arrived with the August interest rate cut.

More recently, yield-seeking investors have returned to emerging markets, while European sentiment has rebounded thanks to improving economic data. This has left US assets looking less attractive given their maturing cycle. As a consequence, European and emerging market assets have been the dominant driver of portfolio performance so far in 2017, while US stocks’ performance has been more pedestrian.

The year(s) ahead: invest strategically…

Without a doubt, we will see episodes when capital markets respond negatively and sharply to challenges, whether they are political, economic or market-induced. Historically, the biggest mistake investors make is to respond in a knee-jerk way to such volatility. We place great importance on our strategic allocations for this reason: sticking to sensible, strategic combinations of diversified assets protects our investors from many of the behavioural pitfalls that can be so damaging to achieving long term investment performance targets. This applies to investors in all 3 of our portfolio ranges: sterling, euro and US dollar.

…and efficiently

At the same time, we recognise the significance of compounding incremental gains for portfolio returns. That is why we maintain a laser-like focus on costs, ensuring that clients never have to worry about the impact of high charges (whether from investing with ‘star’ fund managers, commissions or unnecessary FX spreads) on achieving their investment goals.

Past performance is not a reliable indicator of future results. When investing, your capital is at risk.

ⁱOne year returns to 31st May 2017 of indicative live portfolios in each Risk Level, using the market prices at which purchases and sales took place. Returns are shown net of (i) all charges associated with the underlying fund investments and (ii) a Netwealth fee of 0.5% per annum covering management, trading, custody and administration charges. Netwealth’s fees range from 0.65% – 0.35% pa depending on account size. These figures refer to the past and past performance is not a reliable indicator of future results.

ⁱⁱPeer group returns are the Asset Risk Consultants (“ARC”) Private Client Indices, including estimates for April and May 2017. For more information, see www.suggestus.com