Investment platform Nutmeg cuts fees, but is it cheapest?

Updated on 24 January 2014 | 1 Comment

Nutmeg will handle your investments for you and has cut its fees if you invest before 17th February. But is it a smart move?

It's generally accepted that the best investors are those that manage their own investments, keep a close eye on market movements and understand the ins and outs of the stock market. But what if you have neither the time nor inclination to be a hands on manager of a portfolio of investments?

One company offering to do the hard work for you is Nutmeg. This online investment firm offers a full discretionary management service – meaning they will build and manage your portfolio for you – with fees of as little as 0.3%. But, is it a good idea?

A cheap service

Certainly, a low fee discretionary model is long overdue. Up until the launch of Nutmeg, to get someone to build and manage your portfolio for you would cost a lot more – up to 3% a year in some cases.

And you would need to have a lot to invest as many wealth managers wouldn’t deal with less than £1 million portfolios. In contrast, you can invest as little as £1,000 with Nutmeg.

There is a price war currently waging among the fund supermarkets with Fidelity and Hargreaves Lansdown both announcing fee cuts (though some will actually pay more, as we explained in Hargreaves Lansdown price changes: what it means for you). But, Nutmeg comes out on top for anyone with a large portfolio they don’t want to manage themselves, helped by the fact it is cutting its fees for the first year if you invest through Nutmeg before 17th February.

If you have over £250,000 to invest Nutmeg charges just 0.3% in portfolio management fees for the first year – rising to 0.5% after that. Anyone lucky enough to have a portfolio worth over £500,000 will pay just 0.3% every year.

On top of that you will pay for fund costs, but Nutmeg says this is typically a further 0.3% in underlying fee costs and 0.17% in bid-offer spread costs. So for anyone with a large portfolio that is an overall cost of 0.77% to have your portfolio managed for you – that’s not bad at all.

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What about small portfolios?

But, if you have a smaller portfolio there are cheaper options. Nutmeg charges 1.37% to manage portfolios of £1,000 to £25,000, including the underlying fund and spread costs. If you are solely concerned with cost then investing your cash into a couple of cheap index trackers will see you paying less.

For example, invest in tracker funds via a fund supermarket and your total cost could be as low around 1.2% a year. Just remember that for that saving you will be responsible for picking your own funds and trading them yourself. Compare tracker fund ISAs.

Here's how the Nutmeg fee special offer shapes up for different investment totals.

Investment size Normal fee Special offer fee
£1,000+ 1% 0.9%
£25,000+ 0.9% 0.75%
£50,000+ 0.75% 0.6%
£100,000+ 0.6% 0.5%
£250,000+ 0.5% 0.3%
£500,000+ 0.3% 0.3%

Special offer fee is available if you invest before 17th February

How will your investments perform?

After cost, the next factor you should consider is performance. Nutmeg is a relatively new venture so its performance figures don’t cover a very long period – just 12 months.

In general, it is hard to get an idea of the company’s success until it has posted at least three years of performance figures. But so far the results are impressive, with eight out of ten of its risk sectors posting results that beat the equivalent market return.

Nutmeg sets up your portfolio in one of its 10 risk categories, based on your answers to an array of questions. And the more risk you are willing to take, the bigger your return would have been in 2013. Its best performance came in its second riskiest category, with a return of 15.3%. That was actually a little down on the market return of 15.8%.

At the other end of the spectrum, the most cautious investors would have seen a return of 2.4% against a market fall of -0.6%. In the mid-range Nutmeg returned 12.3% against a market return of 9.5%.

It’s all quite impressive, but these results need to be taken with caution as the markets in general performed well in 2013. Nutmeg has yet to be tested with the tougher economic conditions of a bear market.

Generally, if you have the time to manage your own portfolio you will save money in fees. But for anyone looking for the opportunity to hand their investment decisions over to someone else Nutmeg is an attractive proposition.

What do you think? Would you be tempted to give Nutmeg a try? Or do you only trust yourself with your investments? Let us know your thoughts in the comments box below.

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More on investment:

Hargreaves Lansdown price changes: what it means for you

Stock market predictions for 2014

What the stock market did in 2013

Bitcoins: should you invest in the digital currency?

Five ways to invest in UK businesses


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