Low-risk portfolio investors suffer highest losses

DIY Investors who bought into a low-risk, ready-made portfolio have seen higher losses than those invested in higher-risk strategies, new data reveals.

Piggy bank in a volatile position
Low-risk portfolios have recorded negative returns since the beginning of the year
(Image credit: © Getty Images)

Investors with low-risk portfolios are more likely to be suffering large losses in 2022, according to data from provider Boring Money.

Ready-made portfolios are popular with novice and DIY investors because they combine different diversified investments into one fund. They are usually split into different risk categories and are managed by the provider, but investors can conveniently keep track of their investments on the platform.

However, ready-made portfolio investors have had a tough time this year. All ready-made investment portfolios have recorded negative returns since the beginning of 2022. But it’s those playing it safe who have suffered the biggest losses.

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Low-risk portfolios underperform high-risk ones

Eight portfolios or funds in the bottom ten by performance this year have been low or medium risk ones.

Eight of the top ten worst performing funds in 2022 market themselves as being low or medium risk.

The average low-risk portfolio has returned -12.7% year-to-date, while the average high-risk portfolio has seen an average return of -11.7%.

“There are many factors behind these performance numbers,” says Holly Mackae, CEO of Boring Money. “From the expected underperformance of ethical options which exclude fossil fuels, the upheaval in bond markets and especially UK bonds, and also the approach taken to hedging in light of a strong US dollar."

Boring Money’s data evaluated the performance of 33 leading ready-made investment portfolios from ten of the industry’s main providers, including AJ Bell, Hargreaves Lansdown, Vanguard, Moneybag and Nutmeg.

Out of the top 10 best-performing ones, only three were low-risk while five were high-risk. Moneybox topped the chart with its “Cautious” investment option (low-risk) returning -3.42% year-to-date.

AJ Bell’s “Adventurous” offering,(high-risk), wasn’t far behind, returning -3.52% year-to-date. The platform’s medium-risk Balanced option returned -4.92% making it the third-best performer on the list.

Other high-risk strategies on the list included HSBC’s Adventurous fund with a return of -9.13%; Vanguard LifeStrategy’s 100% Equity Fund returned -9.62%; Moneybox’s Adventurous fund 9.94% and Natwest Invest’s fund 5 - High Risk returned -10.39%.

Which were the worst-performing low-risk portfolios?

Wealthify’s ethical, high-risk adventurous offering was the worst performer, returning -21.40% year-to-date.

Santander DA’s multi-index Fund 1 and Fund 2, with low and medium risk levels respectively, returned -20.84% and -18.37%.

All the other funds on the list managed medium or low-risk portfolios. Wealthify’s high-risk Adventurous fund was the best of the worst, with a return of -14.51%.

“Although NINE months is not long enough to support any conclusions about a provider’s performance credentials, it is long enough to call into question again the description and positioning of ‘ready-made’ portfolios to novice investors,” says Mackae. “It’s hugely difficult to get the right balance between simplicity, but also arming people with the right expectations around the journey they can expect.”

Nicole García Mérida

Nic studied for a BA in journalism at Cardiff University, and has an MA in magazine journalism from City University. She joined MoneyWeek in 2019.