Britain’s first investors benefit from the pandemic

Young investors have outperformed their older counterparts and professional investors since the start of the pandemic, according to a new study.

Investors between the ages of 18 and 24 outperformed all other age groups, with returns of 22.8 percent since the start of the pandemic.

The 24-34 and 35-44 age groups were not far behind the youngest investors, at 20 percent and 19.2 percent respectively over the two-year period.

The data from the investment platform Interactive Investor examined the performance of its clients by age group and compared it to the average fund.

All three age groups beat the average customer portfolio return of 14.5 percent over the same period and the FTSE All Share Index which gained 6.7 percent.

Older investors, over the age of 65, returned 12.3 percent over the two years by comparison, preferring individual stocks such as Glaxosmithkline and Astrazeneca.

Despite the meme stock phenomenon that sparked a new generation of investors, the research shows that young investors are picking fewer stocks and focusing on supporting investment companies.

Interactive Investor has attributed the success of younger investors to this above-average exposure to trusts — 34 percent average for the age group versus an overall average of 23 percent.

However, it could also be a reflection of the trusts they had, with popular names such as Scottish Mortgage making huge returns during the pandemic.

But while younger investors did well over two years, their outperformance stagnated in 2021 and slipped slightly behind older investors.

Investors over the age of 65 returned 14.6 percent in 2021, compared to 13.8 percent for the average Interactive Investor customer and 13.1 percent among 18-24 year olds.

Young investors have turned their backs on individual stocks, instead opting for mutual funds that performed well last year

Young investors have turned their backs on individual stocks, instead opting for mutual funds that performed well last year

Young investors have turned their backs on individual stocks, instead opting for mutual funds that performed well last year

The mutual fund sector has proven to be a popular asset class for investors, with data from the Association of Investment Companies showing that the sector raised £14.8 billion in new money last year.

The closed-end structure was previously overlooked by some everyday investors, but it gives managers the opportunity to invest in illiquid assets such as infrastructure and renewables that have proved popular in recent years.

Another benefit that investors have discovered is that earnings are less lumpy than stocks.

Eleven trusts are on the AIC’s Dividend Heroes list for increasing their dividends for more than 40 consecutive years, including City of London Investment Trust and Alliance Trust.

AGE PERFORMANCE
Column 24 months return 18 months return 12 months return
18-24 22.8% 19.5% 13.1%
25-34 20.0% 16.8% 12.9%
35-44 19.2% 16.0% 12.7%
45-54 16.6% 13.7% 13.1%
55-64 14.1% 11.2% 13.4%
65+ 12.3% 8.6% 14.6%
Source: Interactive Investor

This is likely due to the greater exposure to equities in this age bracket: equities made up 42.9 percent of the portfolios of 65+ investors, compared to 23.3 percent among 18- to 24-year-olds.

Interestingly, II said last year the average investor was unable to beat the FTSE All Share and FTSE 100 – which returned 18.3 percent and 18.4 percent, respectively.

However, they still beat the professionals at their own game compared to a multi-asset portfolio rather than a portfolio invested only in stocks. The IA Mixed Investment sector shares 40-85 percent, which rose just 11 percent throughout the year.

Scottish Mortgage, Britain’s largest investment trust, was the most popular holding across all age groups.

Baillie Gifford’s flagship has yielded 300 percent over the past five years, while the FTSE All-Share Index has returned just 10 percent over the same period.

Confidence, which put early bets on Tesla and Amazon, has underperformed over the past six months, and a further technical sell-off has sent the stock price down more than eight percent since the start of the year.

While Tesla has remained a popular stock for Interactive Investor customers of all age groups, they say individual stocks do not dominate the portfolios of 18- to 24-year-olds.

However, this differs from data from the free stock trading app Freetrade, which has 1.2 million UK customers, 27 percent of whom are between the ages of 18 and 25. The investors can buy individual stocks, mutual funds and ETFs.

Leading technology stocks such as Apple and Amazon make up 50 percent of the portfolios of all investors across all age groups, although younger investors appear to have taken a “satellite and core” approach, with S&P tracker funds particularly popular.

Freetrade investors between the ages of 36 and 45 are the least risk averse, as 60 percent of top buys are tech stocks, suggesting they want to maximize growth before shifting to income as they retire.

According to Interactive Investor, there were also some subtle differences between the performance of men and women. Women outperformed men slightly in the past year — 13.9 percent versus 13.7 percent.

Since the start of the pandemic, women have seen returns of 14.3 percent just above the 14.2 percent earned by men, which the platform says could be because they had higher exposure to mutual funds, but portfolio differences are minimal.

“It is encouraging to see that our clients have managed to navigate the lingering market uncertainty since the start of the pandemic in 2020,” said Interactive Investor CEO Richard Wilson.

“In the 24 months of data collected, our clients have outperformed both the FTSE 100 and FTSE All Share, and our younger investors have shown particularly impressive performances, paving the way for their longer-term financial security.”

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