On average, 90 percent of the variability of returns and 100 percent of the absolute level of return is explained by asset allocation.
In our first customer insights article , we delved into the variability of portfolio management styles selected by our clients in different countries. We followed this up with a post on the average age of our users and where we are seeing the largest uptake of our zero fee child accounts. In this third customer insights article, we wanted to focus on the investment management side of things and turn something near and dear to our own hearts; Asset Allocation. Looking at our data, across 32 European countries, the trends we are seeing in asset allocation selection and the willingness to take risk.
Given we are in the 8th year of a bull market, the average age of our investors is 34 years and that our portfolios are used by individuals to invest outside of their pension pots, it is perhaps not surprising to find out that our clients tend to have larger equity allocations than bonds. The most used asset allocation, is an 80% allocation to equities (20% to bonds). In fact, there is remarkable uniformity between the three currencies with an 80/20 equity/bond split, 50/50 and 100% equities making the top three to five most selected target weights. The average asset allocation across all three currencies is also incredibly similar, with an average equity weight of 68% in GBP portfolios, 66% in EUR portfolios and 64% in USD portfolios. This uniformity is incredibly interesting and points to an increased willingness to take risk which could be due to the long term horizon of investors and/or the general investment views held by our clients.
Similar patterns reveal themselves when asset allocations are studied on a per country basis. Within the UK, Spain, Italy, France, Germany and the Netherlands an 80/20 equity bond split followed by a balanced 50/50 allocations are consistently the most popular. Whereas investors in Ireland, Portugal and Poland have favoured moderate 50/50 portfolios, followed by 80/20 target weights. Lithuania and Slovakia are our most risk-taking countries with 100% equity allocations (in EURs) being the most popular.
We find this data incredibly interesting as it reveals how our investors are thinking in terms of their long-term investment needs. We will continue to track this data and provide input on how these metrics change as our customer base grows, target time horizons shorten over time and markets go through various cycles. We hope this will provide insight to our existing and potential clients around how other investors are thinking about their long-term investment needs and objectives.