Bitcoin gamble has trounced traditional investment strategies

The new AJ Bell Investor Strategy League compares the performance of a plethora of different consumer investing styles to find out which have done best over the last year, and the last decade. Key findings from the 2022 AJ Bell Investor Strategy League include:

• Bitcoin has trounced traditional investment strategies over one and ten years, but it remains a speculative gamble
• It is followed (not very closely) by a global tech stock portfolio
• Cash has been the weakest strategy over ten years
• Index investors beat stockpickers in 2021, but over ten years stockpickers are just ahead
• A strong year for residential property only bags a mid-table spot
• ESG funds are also mid table, but considerably ahead of sin stock investors
• Safe haven strategies like cash, gold and bonds are languishing at the bottom of the performance league over one and ten years
• Warren Buffett has had a good year, but he only just nudges ahead of our random fund picker, Binky the cat 

Laith Khalaf, head of investment analysis at AJ Bell, comments:

“Professional investment strategies tend to be characterised according to four main style factors: growth, value, quality and momentum. However, it’s clear that consumers have a much broader approach to managing their finances, which encompass not just these stock market factors, but other assets such as cash, property and more recently, cryptocurrencies. Some consumers invest actively, others prefer index funds; some follow specialist strategies, while others look to limit risk.

“There’s no exhaustive list of investment styles, and many retail investors will mix and match. But there’s a dearth of literature which compares the different strategies that consumers, rather than professional investors, might pursue. The AJ Bell Investor Strategy League seeks to address this by looking at the performance of some key styles, strategies and asset classes that ordinary savers might adopt, ranking returns over one and ten years. This is the inaugural annual report, and we anticipate it will slowly change over time to reflect new investment trends, but each edition should reveal some of the key factors affecting investor returns and provide some context for financial decisions in the coming year.”

AJ Bell Investor Strategy League summary and table

“The overarching themes running through this year’s report are technology and risk. The top of the performance league is dominated by investment strategies that have had a big boost from US tech stocks. Basically, the higher your tech exposure over the last ten years, the better for your investment returns. The valuation of the US tech sector still divides opinion, but one thing everyone can agree on is it can’t be ignored, seeing as it now makes up such a large part of the global stock market.

“Risk has also been rewarded over the last ten years. This isn’t unusual, as over longer periods taking on higher risk should deliver better returns. The scale of the performance differential between higher risk equity strategies and safe haven assets is startling, however. A low-risk cash approach has turned £1,000 into just £1,142 over the last decade, while that £1,000 would now be worth £3,435 if invested in a global passive fund, and £8,140 for an investor who had gone all in on technology stocks. An analysis of long run historical returns tells us there’s a very strong chance that the stock market will outperform both cash and bonds again over the next decade, but it would have to pedal pretty hard to recreate the stellar growth seen in the last ten years.”

Total returns in GBP to 31 Dec 2021

Sources: AJ Bell, FE, Morningstar, ONS, Refinitiv, Bank of England, Cointelegraph, full category definitions available in appendix below