The interactive investor (ii) Index: Q2 2024

interactive investor, the UK’s second-largest investment platform for private clients, has launched the latest instalment of the ii index, which provides a unique insight into how ii customers have fared and positioned their portfolios in the ever-changing investment arena.

Our index data now goes back four and a half years, covering the period spanning from the beginning of 2020 to the end of Q2 2024.

Key Findings:

• The average ii customer outperformed the IA Mixed Investment 40-85% shares sector across all seven time frames examined
• Over four and a half years (to 30 June 2024), the average ii customer returned 21.4% versus 20.67% for professional managers (using the IA Mixed Investment 40-85% shares sector as a proxy)
• Longer-term outperformance is led by the by those in the 35-44 age cohort, but youngest investors came up trumps over shorter time frames (two years, one year, nine and six months)
• Women outperform men over the longest periods (four and a half years and three years). Men outperform over shorter periods
• Bonds continue to prove popular with UNITED KINGDOM 0.25 31/01/2025 (LSE:TN25) gilt topping the most-held investments (by value) list among the 25-34 and 35-44 cohorts
• ETPs (a category of investments largely consisting of exchange-traded funds – ETFs) popularity reached a new peak – accounting for almost 10% of the average ii customer portfolio.

Source: interactive investor.

You can download the full research here. 

What’s driving outperformance among youngest investors (18-24) and the 35-44 cohort?

The 18-24 cohort, which boasts the highest returns over the shortest time frames, (two years, one year, nine and six months) have the highest weighting to investment trusts (25.8% versus 19.2% for the average ii customer).

Investment trusts have been boosted by the narrowing of the discounts from 19% last October, the widest level since the global financial crisis, to 13%, according to recent data by the Association of Investment Companies (AIC). 

Meanwhile, the 35-44 age group, which posted the best returns over the longest time frame (four and a half years) and over three years, has the highest exposure to exchange-traded products (ETPs) and funds and the lowest portfolio weighting to investment trusts.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Now that we have four and a half years of data, we have a much fuller picture of how our customers have been faring. They can take pride in generating solid returns in the ever-evolving investment landscape. 

“From enthusiasm over the potential of artificial intelligence (AI) to transform various industries driving strong performance among technology stocks to uncertainty over inflation and interest rates stoking volatility, our data shows that customers have benefitted from a well-diversified portfolio. You cannot time the market, but you can benefit from diligent investing spreading your risk through diversification and of course, compounding - which remains possibly the most powerful long-term investing tool.”

What has changed from last instalment?

Gilt-y investment momentum continues

The popularity of bonds etched higher once again, with allocations to instruments in the ‘other’ category (meaning fixed income and corporate bonds) climbing to 3%, up from 2.7% in Q1 and a low of 0.4% in Q1 2021.

The most-popular bond by some margin was the TN25 gilt, which matures in January 2025 and pays a 25p coupon, and yields just over 4% if held to maturity. The gilt jumped up a position from the last instalment to secure top spot in the list of the most-bought investments (by value) among ii customers aged 25-34. 

Sam Benstead, Fixed Income Lead, interactive investor, says: “Bond investors are tapping into inflation-beating yields on offer, with yields sitting above 4% on gilts across a range of maturity lengths in the second quarter of 2024, as the Bank of England held off cutting interest rates. 

“Gilts maturing soon, with low coupons, have been very popular. Gilts have a special tax status: while their coupon income is taxed as income, capital gains are tax-free. Because a large part of the total yield from low-coupon gilts issued when interest rates were near zero comes from the capital uplift when the bonds mature, they are a useful tool to pay less tax on investments held outside of tax-efficient wrappers, such as SIPPs or ISAs.” 

ETP positions reach record high

The rise in popularity of ETPs – a category of investments largely consisting of exchanged-traded funds (ETFs) – has been another emerging theme in recent instalments of the ii index and remains in the latest report.

The average portfolio weighting hit a new high of 9.4% in Q1 24 and a low of 5.7% three years ago in Q1 2021. Elsewhere, fund exposure is also up (25.9% from 25.3% in Q2).

Kyle Caldwell, Funds and Investment Education Editor at interactive investor, says: “There’s a clear preference to go global across all the age categories, asides from 65+ having seven UK-listed stocks in the top 10, which is a reflection of investors at retirement looking for income opportunities. Going global gives investors diversification and to benefit from the current trend of technology stocks having their moment in the sun due to plenty of investor excitement around the potential of artificial intelligence.”

The ii index sits alongside ii’s suite of barometers aimed at providing insight on investor sentiment, drawing from data on investment patterns from ii’s more than 400,000 customers.

The suite comprises of ii Trading Index and most-bought investments, each published monthly, and ii index,ii SIPP Index and the ii Top 50 Index – each published quarterly.