Unveiling the Most Successful Investment Strategy Over the Last Decade

An insightful look into various investment strategies reveals which approach has triumphed over the past decade. In collaboration with AJ Bell, an investment platform, we compared the results of six distinctive portfolios, each following a widely recognized investment approach.

The Experiment

Imagining an initial investment of £10,000 a decade ago, we tracked how much each of the six portfolios—based on different investment strategies—would have earned an investor by now. Laith Khalaf, the head of investment analysis at AJ Bell, who conducted the analysis, as well as our team, was taken aback by the findings.

The Quest for the Best Strategy

Investment methods are numerous as investors chase the strategy that promises an edge in wealth growth. Some maintain a steadfast buy-and-hold approach, others opt for contrarian moves, and some hunt for undervalued gems.

To discern which strategy holds true, we crafted portfolios not with specific stocks or funds but based on investment sectors defined by the Investment Association, allowing for a broader industry representation. Thus, we put six distinct strategies to the test:

• Performance Chasers: Investors who annually shift their holdings to last year's best-performing sector.
• Buy and Hold Global: Investors who invest in a global fund and do not make changes for ten years.
• Egg Spreaders: Diversifiers who allocate equally across several international funds and rebalance annually.
• Herd Investors: Those who follow the crowd and invest in the most popular sector each year.
• Contrarians: Investors doing the opposite of herd mentality by choosing the least popular sectors annually.
• Bargain Hunters: Those who invest in the worst-performing sector of the prior year.

Performance Chasers Take the Lead

The clear winner was the Performance Chasers, who would have transformed their £10,000 into £27,360. Following them, Buy and Hold Global investors would have seen £24,184. The least successful were the Bargain Hunters, with only £14,203, yet still surpassing inflation's effect on the original £10,000 back in 2014.

Laith Khalaf's reaction underscores the irony of the results: performance chasing, typically dismissed as inadvisable, has proven quite profitable over the past decade. This outcome yielded a 173.6% return over those 10 years.

But Can This Success Be Replicated?

One might argue that the rally of US tech companies greatly influenced these uncommon outcomes. Delving into other ten-year periods over the past 30 years, AJ Bell found none where Performance Chasers didn't outmatch a buy and hold strategy. Interestingly, sectors like tech, India, healthcare, and commodities took turns leading the pack at different times.

Despite historic success, it is crucial to remember past performance isn't a future guarantee. Strategies that excel can suddenly pivot without warning. Moreover, performance chasing might expose investors during market bubbles, as seen during the dotcom crash.

Additionally, the types of fluctuations experienced can be significant. For instance, a Performance Chaser in 2000 would have weathered a 31% drop as opposed to a 5% drop experienced by Buy and Hold Global investors.

Managing Portfolios Is Complex

While comparing hypothetical portfolios is one thing, managing an actual investment portfolio is far more intricate. A passive approach like buy and hold requires minimal intervention, just occasional rebalancing or adjustments based on one's investment goals or time horizon. But actively chasing performance would need frequent strategic changes and can incur additional transaction fees.

For those preferring stability over adventure, a global portfolio is a solid foundation. However, if your convictions are strong about certain investments, you might consider a minor adjustment to reflect those beliefs—without going all-in on them.

Investing, Strategy, Performance