DFM Insight: Top-performing growth portfolios revealed

Following the recent launch of the Defaqto MPS Comparator, Andy Parsons, insights manager, investments, at Defaqto takes a closer look at the top-performing portfolios that are categorised as being constituents of the ‘Growth’ comparator. 

Each Defaqto MPS Comparator peer group makes it possible to compare various data metrics including net performance, costs and charges, and peer group asset allocations to determine underweight and overweight asset position, relative to the corresponding Defaqto MPS Comparator peer group.

The table below illustrates the top 10 performing MPS portfolios as categorised under the Defaqto MPS Growth Comparator, based on 3-year cumulative return to the end of April 2024.

Unlike the IA Mixed Investment 40-85 per cent Shares, where the disparity in returns between the top performer and 10th place on a three-year cumulative return was in the region of 14 per cent, the Defaqto MPS Growth Comparator shows a much tighter grouping of returns with a spread of only 5.2 per cent between the first and 10th-placed MPS.

Advisers need to undertake thorough due diligence for their clients.

Andy Parsons

In terms of outperformance compared to the Growth Comparator average return for the three-year period, all have delivered returns significantly in excess of the comparator average of 8.5 per cent.

Putting it into context, the average return over the period for the Top 10 is 20.47 per cent.

In respect of the total costs these portfolios charge, as the table clearly indicates, there is wide disparity from the Timeline 0.09 per cent Tracker – 80, which is the cheapest at 21 basis points - through to the top-performing Fundhouse Global Equity, at 98bps.

The latter is very much fighting the corner for activemanagement versus passive in the great debate.

Top 10 league table: 3-year cumulative performance to end April 2024

Asset allocation and key underlying holdings

Looking at the average asset allocation across the top 10 within the league table, it’s interesting to note that the Top 10 portfolios, on average, have a higher allocation to UK, North America and Emerging Markets Equity.

A higher exposure to North America has undoubtedly been a key play for many the past 12-18 months as the market has gone from strength to strength, predominantly driven by the so-called magnificent seven.

When considering UK exposure, this may be seen as slightly surprising given the relatively poor performance of the market in general, however, from a valuation perspective, it continues to provide a compelling reason to invest.

As for where the Top 10 appear to be more underweight, this is seen across assets such as UK Corporate Bonds, UK Government Bonds and Global Fixed Income.

When looking at some of the most prominent underlying holdings for those portfolios submitted, there is a clear preference for passive investments rather than active, aligning to helping reduce and minimise costs within the various portfolios.

Examples of some of the most favoured underlying investments include Fidelity Index World, HSBC American Index, HSBC FTSE All Share, Vanguard US Equity Index, Vanguard Emerging Markets, L&G International Index, and a variety of iShares North American, iShares 100 UK Equity Index and iShares Core FTSE 100.

While the attention has focused on the strength and outperformance of the Top 10, Advisers and their clients need to be mindful that during the three-year cumulative period in question, to the end of April 2024, there were some poor performers.

Analysis shows that, of the 244 cohorts in Defaqto MPS Growth Comparator, there were 39 portfolios that did not manage to achieve a total return of even 1 per cent, and 27 portfolios recorded an overall loss during this period.

Past performance is no guarantee to the future, of course, and advisers need to undertake thorough due diligence for their clients.

At Defaqto, we firmly believe the launch of the DFM Comparators is a game changer, providing the open transparency that’s been missing from the MPS investment arena and bringing it more in line with that associated with more traditional multi-asset and single asset funds.

Andy Parsons is Insight Managers (Investments) at Defaqto.