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  1. Wealth
February 6, 2024

Exposure to risk leads to healthy 20-year returns for HNW investors

Investors were rewarded for taking on risk over two decades despite periods of economic turmoil data from ARC indices shows

By Suzanne Elliott

Wealth managers with a healthy exposure to risk have reaped rewards over two decades of turbulent markets, new data released by Asset Risk Consultants (ARC) shows.

ARC’s private client indices, which have been compiled for 20 years, show that over that time period the average discretionary discretionary portfolio has trebled. £1 million invested in a typical ‘Steady Growth’ portfolio in December 2003 would be worth £2.95 million at the end at the end of last year, the research consultancy found.

[See also: Choosing the right private client wealth management for you]

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Over the past 20 years, ARC’s ‘Steady Growth’ index delivered nominal yearly returns of 5.6 per cent — with real returns of 2.7 per cent over that time.

The ARC Indices are a set of benchmarks that reflect the real-world experience of investors who have their wealth professionally managed. They are built using about 350,000 underlying portfolios submitted by 125 private client and charity discretionary managers, with an estimated combined value of around £1.5 trillion.

ARC’s ‘Steady Growth’ portfolios, which account for over half of the total number of portfolios in ARC’s indices, are typically made up of around 60-80 per cent equities.

The growth of these shows that, in spite of periods of market pain — with a maximum drawdown of 25 per cent in 2008 following the global financial crash, and 22 per cent in 2020 — a healthy level of risk exposure delivered ‘positive’ real returns for investors.

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Graham Harrison, founder and Group Chairman ARC, says: 'Thanks to the willingness of participating discretionary investment managers to provide transparency on the performance of their private client and charity portfolios, the ARC Private Client Indices and the ARC Charity Indices are now celebrating two decades of data.

'Looking back over 20 years of performance data, the data reveals some important information for private client and charity investors alike. Despite the bumpy path over the last two decades, real returns for investors have been positive and investors have been rewarded for taking risk. However, the maximum drawdown figures clearly show the extent of pain that needs to be borne during difficult market conditions.'

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