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Diary of a digital investor: Nutmeg's first investment review

Diary of a digital investor: Nutmeg's first investment review

There has been an interesting development in the world of online wealth management. One of the four companies I invested money with has actually withdrawn from the market (a fact I only learned after two weeks of waiting for my application to be processed), leaving me with a gap in my four horse robo race.

So I decided to invest in MoneyFarm, one of the better known online services out there, bringing an Italian approach to UK investing.

The initial set up was quite similar in style to the other three – Nutmeg, Moola and Wealthify – although the result of the questionnaire which determined my risk profile was very different.

While Moola put me in the cautious bucket, and Wealthify and Nutmeg created a balanced profile, with MoneyFarm it seems that I am an adventurous investor. The service itself has six risk levels – conservative, focused, driven, exploring, adventurous and pioneering – with the latter being the most risky.

Here is how they define the adventurous investor: ‘ambitious, hard-working, resolute, these are the values that describe your approach to wealth. You have exciting plans for the future and need to grow your wealth to reach those goals. You’ll explore new ways to help you get there but will always remain focused on your mission’.

Coming to such a conclusion after five questions to determine my risk appetite, six to understand my knowledge and experience, and five final questions to find out about my financial situation made me feel a little like I was taking one of those Facebook personality tests. Can I really trust that they drew the right conclusion?

Under knowledge, they asked my education level and out of all the options, I picked “a degree in economics or finance or a post-graduate degree”. Does this mean that I am well versed in finance and therefore can afford to be in a more risky category? It should not, because I studied Middle Eastern Politics, not Business & Finance.

It was nice that they offered a phone call as well to talk about my account, although I did not take them up on it.

I put in £250 as an initial investment and will top it up by £100 every month. This means that my investments are managed for free – except a 0.3% annual charge for the underlying ETFs.

Aside from my slight confusion over my risk profile, the set up and service itself is pretty standard. Nothing extraordinary stood out – like Moola’s dice game, or Wealthify’s circles.   

Investment review: Nutmeg 

Nutmeg began investing on 1 June. Every month, the firm sends an investment update from CIO Shaun Port. While there is a written explanation on the investment strategy, there is also a five minute video featuring a question and answer session with him.

In the May update, he reveals that they have reduced the exposure to UK equities while investing a little more in emerging markets. Port also says that they have adopted a ‘more conservative approach to the way we manage bonds – reducing the amount of bonds and also their maturity’.

In the run up to the general election they also added to Swiss and European stocks, taking the view that global stock markets will do well. Although it is still early days, on 12 June, the portfolio was up by 0.4% to £502. 

Top five investments

  • db x-trackers S&P 500 GBP Hedged Ucits ETF – 16.1%
  • Vanguard FTSE 100 Ucits ETF – 14.5%
  • Lyxor FTSE Actuaries UK Gilts Ucits ETF – 7.9%
  • iShares £ Corporate Bond 1-5 year Ucits ETF – 7.4%
  • Lyxor FTSE Actuaries UK Gilts 0-5Y Ucits ETF – 6.3%

Citywire view

Frank Talbot, head of investment research at Citywire, comments: 'They have removed almost all currency risk from the portfolio, with around 20% in non-sterling or unhedged assets. Is this a tactical decision or do they always do this for UK clients?

'Personally, I’m inclined to feel this is a good move, with sterling still seen as cheap by many. One of my primary criticisms of fund groups in the UK is the lack of sterling hedged share classes on offer and this is where ETFs have an advantage.

'Within the equity portion of the fund there is a clear bias towards the UK, with more than 20.5% of the 59.2% equity allocation invested here. This is equal to the amount held in US equities, followed by 6.1% in Japan, 7.3% in emerging markets and 4.8% in continental European equities.

'If we take the MSCI ACWI as our reference index here and up weight the equity portion to 100%, this represents a 35% allocation to UK equities – far more than the 6% they occupy in the global index. Given that the impact of currencies has been removed – this is a big call on the part of the asset allocators. That being said, it is much less than we observe in the WMA indices of a similar risk profile.

'I like the lack of dealing costs though….'

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