Nutmeg, which claims to be “the UK’s first online discretionary investment management service”, has issued simulated performance figures on its portfolios, which according to the firm, shows clients would have come out ahead of markets on low-, medium- and high-risk positions.

On a typical "medium-risk" portfolio in the 12 months to 30 September, Nutmeg’s returns were 2.8 per cent above market returns and 3.7 per cent higher than competitor returns on average. For cautious investors Nutmeg’s portfolio beat the market by 3.5 per cent and the average competitor by 3.7 per cent. For investors orientated towards high-risk, Nutmeg delivered a return 0.9 per cent above competitors, it said.

The issuance of such figures is a sign of how this new entrant to the wealth management space is seeking to create a splash. It is taking advantage of a changed regulatory landscape for UK financial services, in which older business models have become less profitable. One of the issues that has arisen since the advent of the Retail Distribution Review reforms is the problem of so-called "orphan" clients who are no longer wanted by banks and advisors because they are too small to serve profitably. Nutmeg has been mentioned as the kind of business that is filling this sort of space.

“We delivered a strong performance by finding returns in developed stock markets - being optimistic on the global recovery we held more mid-sized company stocks and we preferred the low-valuation markets of Europe and Japan to large emerging markets,”  Shaun Port, chief investment officer for Nutmeg, said in a statement about the figures.

“With the global economy continuing to improve, we believe that people are likely to continue to benefit from higher returns on investments than cash deposits over the coming years, but they need to be careful to align the risk of their investments with their long-term goals,” he said.

Nutmeg said its figures refer to simulated past performance and calculated using actual Nutmeg trading data from client accounts, using actual trades carried out at market prices, based on an account size of £25,000 ($40,332). The returns are calculated after fees, using the weighted average rate paid by Nutmeg clients as at 1 October 2013 (0.82 per cent per annum including VAT) as well as the underlying fees paid within the funds in which the portfolios were invested (ranging from 0.09 per cent to 0.75 per cent per annum). Dividends have been included on an accrual basis.

The firm said its process for calculating these returns has been assessed by an independent third party, which has conducted an “agreed upon procedures” report.

Editor's note: Such data needs to be treated carefully. An industry figure who spoke to me (he has asked not to be named) asked whether the benchmarks used in this example are the most appropriate, given that the range of ETFs and strategies Nutmeg offers cover more than UK/world stocks and UK government bonds. It also seems that the portfolios mentioned seem to be based on risk assessment only.