Choosing the portfolio that’s best for you: managed or fixed allocation?

Shaun Port
18 March 2018
read 4 min

We hope you enjoy this article from our archives. As investment, pension and tax rules change a lot over time, the information in this post may not be current, but we hope you still find it interesting.

At Nutmeg we offer sophisticated online investing at low cost. We also give you a choice in how you invest. As well as selecting from a range of risk profiles, for our stocks and shares ISA, Lifetime ISA or general investment account you can opt for a fully managed portfolio, or a fixed allocation portfolio. Here we describe the differences between the two, to help you decide which is best for you.

	Fixed allocation portfolios	Fully managed portfolios
Overview	These portfolios are designed to perform over the long term without intervention. By that, we mean we’ll keep you invested in assets that match your risk level, and only review those assets once a year to make sure they’re still right for you. Beyond that, we keep our hands off.	These portfolios are proactively managed by our experienced investment team. This means they will regularly make strategic adjustments to try and protect against losses and boost returns.
The underlying funds	Portfolios hold exchange-traded funds (ETFs) for each asset class regarded as best-in-class by our team
The asset classes	A pre-determined mix of asset classes (equities, bonds and cash) in varied proportions, depending on the selected risk profile.	A mix of asset classes (equities, bonds, commodities, property securities and cash) that are varied by active management by our investment team, dependent on the selected risk profile.
How the investment weights are set	Our investment team: select a range of suitable asset classes based on long-term historical data of risk and return use a quantitative model to simulate possible return and risk outcomes for a vast range of different theoretical portfolios design a set of five optimised portfolios at different risk levels, for the long-term	Our investment team: continually assess all asset classes based on their relative attractiveness and depending on this view, some asset classes may not be held at all or some in in more concentrated amounts use quantitative tools to understand the current economic and financial market environment and the risk of portfolios in a range of scenarios review and adjust portfolio weights where deemed beneficial, based on a wide variety of factors including, but not limited to, their assessment of: (a) current and future economic and market conditions (b) valuations, potential returns and risks of each investment (c) potential changes to government and monetary (interest rate) policy (d) national and geo-political trends (e) potential risk scenarios within each of our 10 risk-based portfolios, our investment team may choose to be more or less cautious, depending on their outlook
Why investment weights change	Your fixed allocation portfolio is monitored against the pre-determined investment weights on a weekly basis. If they move beyond our prescribed tolerance levels, they will be automatically re-balanced back to the set weights.	Nutmeg’s investment team monitor portfolio risk and performance daily. Weights of the different investments are varied according to changes in our investment team’s view.
The review process	Each year we conduct an annual review to: ensure that the ETFs used are best in class (switching to a better one if available) re-assesses investment weights, incorporating new historical data and information on asset class characteristics as they become available each year make adjustments where required, likely to be minor	On an ongoing basis, we review every ETF used, switching to a better one if it becomes available the weights of each investment held whether changes to the weight of each investment would be beneficial the opportunities from other investments for either improving return or lowering risk

Risk warning:

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance. A stocks and shares ISA may not be right for everyone and tax rules may change in the future. If you are unsure if an ISA is the right choice for you, please seek financial advice.

A stocks and shares Lifetime ISA may not be right for everyone. You must be 18–39 years old to open one. If you need to withdraw the money before you’re 60, and it’s not for the purchase of a first home up to £450,000, or a terminal illness, you’ll pay a 25% government penalty. So you may get back less than you put in. Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension. If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions. If you are unsure if a Lifetime ISA is the right choice for you, please seek financial advice.

A pension may not be right for everyone and tax rules may change in the future. If you are unsure if a pension is right for you, please seek financial advice.

A general investment account may not be right for everyone and tax rules may change in the future. If you are unsure if it is the right choice for you, please seek financial advice.

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Shaun Port

Shaun is the chief investment officer at Nutmeg. He has over 25 years’ experience developing and implementing investment strategies for clients ranging from central banks to pension schemes to charities and private individuals. Shaun holds a degree in Mathematical Economics from the University of Birmingham and is a Chartered Alternative Investment Analyst. He can be found tweeting @ShaunPort.