Nutmeg fixed allocation performance

Last year, I decided to experiment with my Nutmeg portfolio because I wanted to know whether I was making the most of my investments.

Specifically, I wanted to compare Nutmeg’s hands-on Fully Managed plans with their more passive Fixed Allocation plans to see whether I could make a saving on fees and still get the same returns.

I covered some of the background here.

So in this second part of the review, I want to explain how it worked and of course reveal the outcome.

Fully Managed vs Fixed Allocation: what’s the difference?

Nutmeg’s Fully Managed plan was the product they launched with, and what I started on.

It’s more forward looking, with a team of experts analysing what’s happening in the world daily and adjusting their investment strategy to reflect that.

Because of this, it’s quicker to react to changes in market conditions. That can go both ways of course.

The Fixed Allocation plan was their second product, which they launched in 2017.

It’s more backward looking; the portfolio of investments are adjusted once a year, with the strategy devised using past performance data.

Because of that, if something unexpected happens in the market, there is no way to react to it until the next portfolio adjustment. But it’s significantly cheaper because there’s less human intervention.

Both of these plans focus on exchange traded funds (ETFs), which are low cost and invest in a diverse range of companies across different countries, so you get to spread your risk.

How my Fixed Allocation experiment worked

To see whether I should switch from a Fully Managed plan to a Fixed Allocation one, I decided to test the performance of the latter.

I opened three Fixed Allocation investment pots, each set to a different risk level: Balanced (3/5), Growth (4/5) and Adventurous (5/5).

For context, on a Fully Managed plan, you can choose a risk of anywhere between one to 10, which will determine the type of investments that Nutmeg will put your money in.

For a Fixed Allocation plan, you only have five risk levels.

Given my Fully Managed plan was set to 9/10 for risk, I decided to test the three higher risk levels on the Fixed Allocation plan.

I deposited the same amount of money in each one in July 2021 specifically so I could see how they would perform against each other and, to a lesser extent, my Fully Managed plan.

How my Fixed Allocation pots performed

In the first few months, all three pots were seeing steady growth, but at different rates.

The Balanced pot saw the slowest growth, achieving highs of 3.9%; the Growth pot saw medium gains, achieving highs of 5.5%; and the Adventurous pot saw the highest growth, achieving highs of 7.6%.

When markets across the board dipped, these three pots all dipped too and at different rates.

There were two big drops in 2022 – one during the Russian invasion of Ukraine in February and a bigger one in June, in response to surging inflation.

The Balanced pot fell by a maximum of 12.3%; the Growth pot fell by a maximum of 10.7%; and the Adventurous pot fell by a maximum of 9.3%.

At this point, all of my investments were worth less than what I had put in.

As a point of reference, my PensionBee portfolio dipped in February but hadn’t actually recovered much by June so visually it just looked like a long decline rather than a double dip.

So while my Nutmeg portfolio fell in value, at least it recovered fairly quickly in between.

Right now, at the end August 2022, all of my Nutmeg pots are working towards recovery following another inflation-related dip.

It’s a similar trend again where the Adventurous pot is recovering the fastest (currently in the positive by 0.27%), followed by the Growth pot (currently in the negative by 3.39%). The Balanced pot is still lagging behind, and showing a loss at 7.41%.

Bearing in mind that the fee is the same regardless of the rate of growth, the Adventurous option is clearly giving me the best returns out of the three Fixed Allocation pots.

Nutmeg Fixed Allocation vs Fully Managed

It’s slightly harder to compare my Fixed Allocation pots fairly with the performance of my Fully Managed pot because I had deposited a different amount of money at a different time, which can affect performance.

That said, based on first-glance numbers alone, my Fully Managed pot has outperformed the Fixed Allocation pots at just about every turn over the last year.

In general, it saw higher growths (8.05%), lower falls (7.06%) and better recovery in between.

It seems to be more responsive and better at reacting to the economic climate – a valuable trait when the market is so volatile.

Except right now, the Adventurous pot is outperforming my Fully Managed pot, with a growth of 0.27% versus a loss of 0.12%.

The difference is almost negligible, but the fee isn’t.

I think it would be interesting to continue running the experiment to see how the two pots stack up, but I’m actually considering leaving Nutmeg, which I mentioned in part one of this review.

Why I’m thinking about leaving Nutmeg

This is a “it’s not you, it’s me” scenario.

There’s nothing wrong with Nutmeg necessarily but my needs have changed – now I’m looking for a lower fee and I’m happy to be a bit more hands on.

Since I first dipped my toes into investing, I’ve had more time to read and learn about different funds.

It means I’m much more comfortable with picking my own funds and, based on my experiments with Hargreaves Lansdown* (a review coming in September), it seems to be going well.

HL is much cheaper too, which is a boon.

If I was staying with Nutmeg though, I’d certainly consider moving my Fully Managed portfolio over to the Adventurous pot after another year, once (fingers crossed) things have had a chance to settle.

Because while the experiment was imperfect, the Fully Managed portfolio should have performed noticeably better given the higher fee.