First established in 2012, Nutmeg currently manages c£500million Assets Under Management (AUM). The digital investment manager uses smart algorithms and expert in-house market analysts to tailor investment portfolios, comprised of ETFs, to varying demographics of investors. Nutmeg’s discretionary service and streamlined processes provide fast, hands-off, efficient investments and returns. Having been in the press a great deal since launching, not least for their high AUM but also annual losses, Nutmeg stands by its mantra:
Smart investing for everyone
But, is Nutmeg, and robo-advice more generally, for you? Here we will take you through Nutmeg’s products and processes so you can decide if you’re comfortable investing in this major robo-adviser.
Nutmeg offers investors three primary benefits through its investment management service:
1 Expert professional management
Pragmatic and sensible investment strategies are implemented to ensure individuals avoid underperformance. The S&P 500 returned 11.1% annually over a 30-year period, while individual investors chasing returns or “timing the market” achieved returns of 3.8% over the same time period.
(Source: 2015 Dalbar study of US equity investors)
2. Globally diversified, regularly rebalanced
By diversifying your capital across a range of global assets, Nutmeg mitigates the risk of over-indulgence in one asset or locale which could have an adverse effect on your portfolio. Furthermore, by rebalancing your portfolio periodically, Nutmeg aims to provide returns in keeping with your investment goals.
3. Lower fees
By investing in low-cost ETFs, opposed to expensive mutual funds as is common in traditional investing, Nutmeg can save you between 0.29% and 0.94% AUM annually. This is compared to higher fees charged by wealth managers (IFAs included) which can be around 2% AUM annually.
The proprietary Nutmeg technology offers investors, from varied walks of life, the opportunity to access returns through carefully selected ETF-comprised portfolios. Algorithmic portfolio allocation and rebalancing means you leave the investment decisions to Nutmeg. This is a discretionary service, so no expert insight or time commitment is required on your end. A 24/7 365 days-a-year online portfolio view is available, which can be adjusted on your end by logging into your secure Nutmeg account.
To gain tax-benefits on your investment, Nutmeg offers a stocks and shares ISA. This means any returns earned on your portfolio(s) will not be taxed.
Nutmeg Investment Process
By determining your appetite for risk early and marrying your investor profile with one of the 10 risk-graded portfolios, Nutmeg streamlines the investment process so you can start earning quickly and efficiently.
Before you invest a penny, your personal risk profile will be determined by way of a series of questions around your experience in investing, understanding of assets, acceptance of risk, personal finances and so on. There are 10 portfolios available, all mapped by your risk profile. The risk-graded portfolios range from ‘cautious’ (1) to ‘aggressive’ (10).
Your capital will be invested in a portfolio composed of a range of assets, industries and countries, as selected by the Nutmeg team. This portfolio will be algorithmically allocated to you once your risk profile has been determined. The expert team at Nutmeg review market trends on a daily basis, rebalancing your portfolio for you for no extra charge.
The composition of assets in your portfolio will be selected by the Nutmeg team. Like many robo-advisers, Nutmeg uses Exchange Traded Funds (ETFs) that track market indices, such as the FTSE 100, and hold assets like bonds or equities. They are tradable on an exchange and tend to be cheaper than other assets. As mentioned above, there are 10 risk-graded portfolios that your investor profile will be mapped to.
Let’s compare two Nutmeg investment portfolios:
Mid-range portfolio (5th on the scale).
More aggressive portfolio (8th on the scale).
As you can see, the first portfolio, 5th on the scale, has a composition of 41% Developed Equities and 36% Government Bonds. Assets including Corporate Bonds (8%), Money Market (6%) and Commodities (5%) make up much of the remainder of the portfolio composition. The second portfolio, 8th on the Nutmeg scale, is composed largely of Developed Equities, at 74% allocation. Government Bonds make up only 8% of the portfolio. The Nutmeg risk scale is clearly reflected in its portfolios as portfolio 8 is tailored to a more aggressive investor than portfolio 5 – a mid-level investor.
Nutmeg made headlines recently by raising £30m from international investors and increasing its AUM to over half-a-billion pounds to date. The first major robo-adviser to emerge in the UK, Nutmeg faces strong competition as more and more emerge, some from Europe, others as offshoots of incumbent banks. It’s up to you to get comfortable with investing in Nutmeg, as with all investments comes the risk you could lose money.