Comparing performance of discretionary managers and outsourced solutions is notoriously difficult.
The Wealth Management Association itself does not have any statistics in a similar vein to the Investment Association’s monthly breakdown of assets and performance, so it is a case of looking at the headline figures from different sources to try and provide a more complete picture.
Last year, the return for private client investors appears to have been a positive one, with figures from different sources suggesting a reasonable performance, albeit not outstanding.
The FTSE WMA private investor indices delivered a range of returns from 6.47 per cent for the FTSE WMA Stock Market Growth index to a more impressive 10.77 per cent from the FTSE WMA Stock Market Global Growth index. Although with the indices having undergone a change in asset allocation as of February 2 2015, and with all indices seeing a reduction in exposure to UK equities mainly in favour of commercial property, it will be interesting to note how this might affect performance.
The four private client indices (PCI) from Asset Risk Consultants (Arc) delivered an average 4.3 per cent return in sterling terms, with the Arc Steady Growth PCI producing the strongest 4.7 per cent return for the year. The Arc Equity Risk PCI, the index at the riskiest end of the spectrum, delivered a less compelling performance with a return of just 4.1 per cent, only slightly ahead of the lowest risk Arc Sterling Cautious PCI return of 4 per cent.
In its review of 2014, Arc notes that the year “proved to be a volatile but ultimately positive year for most private client investors”. And it seems cautious or less risky indices delivered some of the better results, with the FTSE WMA Stock Market Conservative index returning 9.45 per cent in 2014, the second best of the five FTSE WMA indices.
Arc points out that the effect of negative real interest rates and unpredictable central bank market actions mean “private client portfolios have been moving up the risk spectrum towards an ever increasing exposure to large international equities with solid dividend prospects. Thus, entering 2015, most private client portfolios are sitting with overweight positions in equities and underweight positions in bonds”.
The review does admit, however, that in the past three years less than 20 per cent of the portfolios it has observed as part of its research have experienced positive alpha, while roughly 50 per cent have recorded negative alpha.
Research from ComPeer on the UK wealth management industry in the third quarter of 2014 paints a similar picture. The research shows that assets among wealth managers increased 2.2 per cent to about £550bn in the three months to the end of September 2014, but at the same time profit margins fell and investment management fees also declined.
ComPeer notes in its research: “Asset growth did not result in an increase in investment management fees and total revenue was down 1.5 per cent. With costs up almost 1 per cent, we may be seeing the development of headwinds that could damage year-end and early 2015 profit figures.”
