Netwealth Portfolio Performance: Our Three-Year Track Record

May 31st marked the third anniversary of the launch of the seven sterling Netwealth portfolios. We are very pleased with the performance of these portfolios, whose holdings range from conservative exposures via short-dated bonds to diversified allocations to global equity markets in accordance with their profiles of risk.

All portfolios have made positive returns over this three-year period after fees, with asset prices having generally seen upward moves. Portfolios have also mostly had success relative to their inflation yardsticks and have outperformed their wealth management peers by between 0.5% and 1.6% per annum as measured by the Asset Risk Consultants Private Client Indices (ARC PCI).

  • All Netwealth portfolios have outperformed their peer groups since launch
  • The portfolio management effort has been enhanced by low fees
  • Investing in passive funds has been a strong tailwind, as most active funds struggled to beat their benchmark indices

Performance Since Inception

Past Performance Detail

Source: Netwealth, with data as of 31st May 2019. Portfolio returns are shown net of all charges associated with the underlying fund investments, and a Netwealth fee of 0.35% per annum which covers management, trading, custody and administration charges. Netwealth’s fees range from 0.65% – 0.35% pa depending on account size.

Past performance is not a reliable guide to future performance.

Market environment

The first twelve months were marked by surprising political events and strong market performance, driven by improving labour markets and expectations for synchronised, global growth. Returns were particularly strong for sterling-based portfolios, as investing in international markets was rewarded after the pound fell in value following the EU Referendum.

The economic outlook during the second year was dominated by a widening gap in growth expectations for the US and the rest of the world, which resulted in outperformance of US dollar assets.

The most recent twelve months will likely be remembered for the way those expectations for global growth have faltered. Investors in equity markets have seen more volatility and as a result bond markets have priced in an end to this phase of interest rate hikes in the US.

Indeed, the anchoring of bond yields at low levels has been an enduring contributor to returns seen by our more conservative portfolios. Our medium-risk portfolios have also benefited from incremental exposure to corporate bond markets, where we have been confident that investors were compensated for the risk that defaults increase from current low levels.

At the higher end of the risk spectrum, portfolios have delivered returns above our long-term expectations, following a positive environment for global equity markets built on companies delivering healthy profits against a benign economic backdrop.

Strong performance vs peers

To gauge whether our portfolios have delivered competitive returns, we compare results to the Asset Risk Consultants Private Client Indices (ARC PCI). We are pleased to be able to say that performance has been strong, with portfolios beating their peer aggregates by 0.5% to 1.6% per annum on an absolute basis, as well as delivering better risk-adjusted returns.

Indeed, we feel these outcomes were instrumental in Netwealth winning the PAM Award for Emerging Manager of the Year – an accolade we are very proud of.

Since Inception Annualised Performance vs. ARC Private Client Indices

Source: Asset Risk Consultants and Netwealth, with data as of 31st May 2019. Returns shown net of fees in GBP. ARC data contains estimates for April and May 2019.

Past performance is not a reliable guide to future performance.

Drivers of performance

We believe that there have been two key reasons for this strength of performance.

The first is the diversification of our strategic allocations, which hold significant international exposure and diversifies portfolios away from the UK (an important factor with the fallout around Brexit) and which have retained fixed income exposure while most commentators have been saying that bond prices were bound to fall.

The second key driver of relative returns has been our preference for efficient implementation of investment views: portfolios have held liquid, passive instruments rather than trying to pick which active managers will perform best.

A poor period for active managers

The choice of passive implementation of our asset allocation views has provided a tailwind to portfolio performance, as the past three years have been difficult for the average active manager in most equity markets.

Looking at data from Morningstar, the Investment Association sector average return trailed the returns delivered by passive funds that best represent each market. It is also clear that investors who have allocated too much to the UK have struggled, especially those who have favoured income-oriented equity managers.

Three Year Annualised Returns of Investment Association Sectors

Source: Morningstar, Bloomberg, Netwealth calculations. All annualised returns shown net of fees in GBP terms, as of 31st May 2019

Past performance is not a reliable guide to future performance.

The Netwealth investment approach

By sticking to sensible, calculated combinations of diversified, liquid assets, we believe our investors are protected from many of the behavioural pitfalls that can meaningfully impact long-term investment performance targets.

The benefits of this strategy have been reflected in our performance. Coupled with a rigorous adherence to lower costs and our focus on compounding incremental gains for portfolio returns, we consider our portfolios to be well positioned to help clients continue to achieve their investment goals.

To find out more about our investment approach, please click here.

Important information

When investing your capital is at risk. The value of investments may go down as well as up, so you could get back less than you invested.

Netwealth offers advice restricted to the services provided, and does not provide independent advice across the market.

Netwealth Investments Limited is authorised and regulated by the Financial Conduct Authority with firm reference number 706988.

Netwealth is covered by the Financial Services Compensation Scheme (FSCS).

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