Nutmeg Review – are they the right investment for you?
This is an independent Nutmeg review. I suggest that you read it in full including my analysis of Nutmegs charges and performance. if you wish to jump to a particular part of this review then you can do so via the hyperlinks below:
- How do Nutmeg manage their portfolios?
- What are Nutmeg’s fees and how do they compare
- Nutmeg performance versus its peers
- Nutmeg alternatives
- Who should consider Nutmeg investments?
How does Nutmeg Investment Management work?
- Nutmeg launched in the UK in 2011 and offers investors a cheaper alternative to normal wealth management services by focussing on ETFs and tracker funds that carry lower charges.
- Nutmeg is a low cost online investment platform that will manage your investment portfolio according to your risk profile. Investors can choose from any of the 10 investment portfolios available, each with a mix of investment assets. This service is called the Nutmeg Fully Managed Portfolios
- or investors can choose to invest via a Nutmeg Fixed Allocation Portfolios. Unlike the fully managed portfolios, the fixed allocation portfolios do not dynamically alter in response to prevailing market conditions. As a result the Fixed Allocation Portfolios are cheaper than the Nutmeg Fully Managed Portfolios
- Nutmeg offer a Stocks & Shares ISA that can provide a simple low cost method of investing, tailored to your personal risk profile and fully managed by a team of investment professionals. They also offer a Nutmeg pension product as well as a Nutmeg Lifetime ISA.
How do Nutmeg manage their portfolios?
Nutmeg managed portfolios
- Nutmeg provide a choice of 10 managed portfolios each with a different mix of investment assets.
- The portfolios range in risk from 'cautious' through to 'aggressive'.
- Each portfolio is invested in many different types of assets, countries and industry sectors, this diversifies the risk and improves the chances of having money invested in the best places to provide higher returns.
- Nutmeg regularly review the investments in your portfolio to make sure that your money is still invested in the places that best fit your personal investment goals and risk profile.
- Nutmeg prefers to invest in exchange-traded funds which are designed to track the movement of various market indices.
- It is a way of getting exposure to a pool of investments without having to purchase each one individually. Also, the costs involved with ETFs are low and they are easy to trade.
Nutmeg fixed allocation portfolios
- Nutmeg's fixed allocation portfolios are Nutmeg's new attempt to target those investors who want a cheap multi-asset tracker fund portfolio but with minimal additional costs applied for the benefit of having it managed by Nutmeg's investment team.
- There are 5 set portfolios to choose from ranging in risk level (cautious, steady, balanced, growth, adventurous).
- As the name suggests the portfolio allocations are fixed and never change. So as markets fluctuate your portfolio will maintain the same exposure to each asset type as it had at outset.
- To maintain the percentage exposure the portfolio is automatically rebalanced.
- The fixed asset allocation portfolios are clearly aimed at those investors who want a very low-cost hands-off way of investing in a diversified tracker portfolio.
- Because the asset allocation is fixed the cost of the service is lower than Nutmeg's managed service as shown in the next section.
- However the fixed allocation portfolios are not available through the nutmeg pension
What are Nutmeg’s fees?
Nutmeg's fees depend on the amount of your overall investment as shown below. Nutmeg reduced their fees in early 2017 to those stated below in an attempt to undercut their competition.
|Investment amount||Nutmeg managed portfolio fee||Competitor managed portfolio fee||Nutmeg Fixed Asset Allocation portfolio|
|£0 - £20,000||0.75%||0.7%||0.45%|
|£20,001 - £100,000||0.75%||0.6%||0.45%|
|£100,001 - £500,000||0.35%||0.5%||0.25%|
In addition there is an average underlying fund cost of 0.9% that needs to be applied (industry average 1.43%). The figures above are just Nutmeg's charge for running your money.
Nutmeg’s portfolio performance
The chart below shows the performance of each of the 10 Nutmeg managed investment portfolios over the 3 years to 1st July 2017 (the most recent data available at the time of writing) compared against an index of competitors for each of the risk levels. Past performance is not a reliable indicator of future performance. The figures in brackets are the equivalent performance numbers when I carried out the same exercise back in September 2016. So for example if you look at portfolio 3 Nutmeg's performance over the last 3 years to 1st July 2017 was 8.1%. But back in September 2016 the 3 year performance was 10.6%. You might put that down to the change in timeframe but the competitor's performance figure fell by much less. So I've colour-coded the rows red where Nutmeg's performance appears to lag its competitors and green where it outperforms.
|Portfolio||Nutmeg performance over 3 years (see notes below table)||Competitor performance over 3 years (see notes below table)|
|3||8.1% (10.6%)||11.1% (11.9%)|
|4||11.5% (13.9%)||11.5% (11.9%)|
|5||13.0% (14.3%)||17.1% (16.7%)|
|6||15.0% (15.5%)||17.1% (16.7%)|
|7||20.6% (19.7%)||22.7% (20.7%)|
|8||24.0% (22.0%)||22.7% (20.7%)|
|9||27.9% (25.2%)||25.5% (22.5%)|
|10||31.4% (28.6%)||25.5% (22.5%)|
There are a couple of things to point out about the performance figures. Firstly they use an assumption of the average costs incurred by a Nutmeg customer. Also the data which Nutmeg use as indicative of their competitors is based on data provided by a firm known as Asset Risk Consulting (ARC). ARC take anonymised client return data from wealth managers across the industry and then uses it to benchmark managers such as Nutmeg. You can see from the table above that ARC only has 4 portfolios versus Nutmeg's 10 which makes direct comparison difficult. But the takeaway is that Nutmeg's investment performance is largely on a par with its peers, which are almost exclusively the preserve of wealthy individuals. In addition the Nutmeg performance data suggests they actually perform well the more investment risk you are willing to take. You can check the latest performance data on the Nutmeg site.
There is no data available on the new Nutmeg fixed asset allocation models.
Who should consider Nutmeg investments?
- Nutmeg has a minimum initial investment of £500 but if you are investing below £5,000 then a minimum recurring monthly contribution of £100 must be set up to grow your portfolio. This means that a new investor must be willing to invest a minimum of £5,000 over time.
- Nutmeg is a suitable investment solution for anybody who wants a low cost way to invest in the stock markets but does not have the time or expertise to make their own investment choices.
- Also the analysis of their performance data would suggest those willing to take a higher level of investment risk may be particularly suitable.
- In my view an ideal client would be someone who is happy to take risk, keep their money invested for the long term and who doesn't have the time or expertise to run their investments but realises the importance of controlling costs.
Nutmeg is the most well established brand in the UK when it comes to managed tracker portfolios. Since it launched in 2011 it has become one of a growing band of robo-adviser propositions which have come to the market. One such robo-advice proposition is Moneyfarm which launched in the UK after successfully becoming one the largest digital investment firms in Europe. I compare Moneyfarm's charges and performance against Nutmeg's in my Moneyfarm review. Moneyfarm is cheaper, has no minimum investment amount and has achieved better investment performance than Nutmeg . At present Moneyfarm also have an exclusive offer that means it will run the first £15k of your money free of any management charge for the 1st year. Nutmeg doesn't come even close to matching this level of low cost management (they charge 0.75%) so for that reason I'd favour Moneyfarm over Nutmeg at the moment. However, Moneyfarm do not yet offer a pension product so if you want to invest via a pension, rather than a Stocks and Shares ISA or plain investing account, then stick with Nutmeg.
If you would rather pick your investment funds yourself, rather than have someone run it for you, then you could use a fund platform such as Hargreaves Lansdown or Vanguard Investor. Read our full Hargreaves Lansdown review and Vanguard review for more information. The former is the market leader and offers the widest range of funds which can be held in their ISA, Lifetime ISA or Vantage SIPP. While Vanguard provides one of the cheapest ways to build a bespoke portfolio of tracker funds. If you like the idea of picking your own funds using a fund platform like Hargreaves Lansdown but don't know where to start then have a look at our 80-20 Investor service which empowers DIY investors to make their own investment decisions.
How safe is a Nutmeg investment?
There has been a lot of press coverage over the fact that Nutmeg has yet to make a profit as a company. In fact Nutmeg's lost over £9m in 2016. As with most robo-advice propositions their business model becomes profitable once they hit £1billion to £1.5billion AUM (assets under management). Nutmeg currently has around £600m AUM. So as strange as this may sound some early stage losses are to be anticipated and Nutmeg secured a further £42million in funding from backers at the end of 2016. In any event, Nutmeg holds clients' investments with a 'custodian bank', this is a specialised financial institution responsible for safeguarding a firm's, or individual's, financial assets. Clients' assets are therefore separate from Nutmeg assets so should not be affected if the company failed in the future. You can find out more information in Nutmeg's FAQs.
What are customer's views regarding Nutmeg's service?
Below are a collection of reviews from online sources such as Trustpilot:
- 'The easiest way to invest in stock, shares, bonds and without needing to spend years researching or learning the ropes yourself' - John B
- 'Nutmeg makes everything smooth; they post updates monthly on Youtube, they send me annual statements and reply to any queries promptly and efficiently. I would definitely recommend them' - John W
- 'Returns will vary but in ten days my total fund has made £112 or (0.74%). Will have to wait and see for the long term projections, but it looks promising so far' - Francis R
- 'I can only comment on the setting up process as it's such a recent investment but I found the site easy to use and clear about costs' - Rachel
- 'Been with Nutmeg over a year now and have got substantially better returns than I did when trying to trade myself' - James
If you are looking for a low cost stock market investment service then take a look at Nutmeg. They are cheap but not the cheapest especially if you want them to manage your portfolio. However they remain cheaper than most online investment services (an exception is Moneyfarm as described in the section above titled 'Nutmeg alternatives') and most fund platforms when you factor in the underlying cost of the investments they use (ETFs). In addition Nutmeg's performance provides a reasonable return and has outperformed many of its peers with its high risk portfolio. Overall Nutmeg give simple easy access to investing within a Stocks and Shares ISA, Lifetime ISA or a pension providing reasonable returns over time.
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