Private client investment portfolios are back where they were in 2021, showing how inflation dented the real return performance in 2024, despite rises in equity markets.

Real returns that take inflation into account showed that price rises prevented strong equity markets in 2024 from leaving private clients better off, according to Asset Risk Consultants. In fact, with most portfolios, they’re 12 per cent below where they were in 2021.

Equity investors enjoyed a “stellar” 2024, ARC said in a report, with global indices rising by 19 per cent in US dollar terms but real returns continue to lag following 2022’s re-adjustment of bond yields, which resulted in a downward shift in the wealth of investors. 

“Investors may be relieved to see the value of their portfolios back at pre-2022 levels but it is important to consider portfolio returns after inflation has been taken into consideration,” Shaun Le Messurier, director, ARC Research, said. “Our data shows the extent of the damage caused by the market events of 2022.”

ARC collects performance of more than 350,000 investment portfolios, net of fees, supplied by more than 140 investment managers to establish the actual returns that clients realise. Managers covered by the data include Barclays Wealth, Brewin Dolphin, Investec, Rathbones and UBS. This news service interviewed ARC here about its work. 

Private clients made average nominal returns of 8.4 per cent last year, beating an historical average of 6.1 per cent. (The figures are based on sterling steady growth portfolios, the most popularly held portfolio type by private clients. These are portfolios with a risk, measured by volatility, within a range of 60 per cent to 80 per cent of the volatility of world equities. This would cover 60 per cent equity and 40 per cent bond portfolios.) 

Adjusting for inflation, most private client portfolios are at 2017 levels, and real returns need to average 6.6 per cent over the next 10 years to revert to the historical norm of 4 per cent per annum real returns, ARC said. 

The chart below plots the ARC Sterling Steady Growth Private Client Index (based on the most common risk profile run by discretionary investment managers) since inception against a trend line of inflation, plus 4 percentage points per annum. That target is a common expectation for a multi-asset class portfolio and suggests that an investor in such a strategy should be able to sustain a withdrawal rate of up to 4 per cent per annum over the long term, ARC said.


Source: ARC

The light blue shaded periods are punctuated by three market drawdown events that lasted more than one year: the 2008 financial crisis; the 2015 sell-off; and the 2022 energy crisis. Up until 2021, the ARC Sterling Steady Growth PCI was delivering real returns of circa 4 per cent per annum. However, the most recent drawdown has caused a very significant gap to appear.

ARC’s latest investment manager sentiment survey of CIOs shows that while positive sentiment towards equities has increased with a new year on the horizon, investors will have to face several key risks in 2025. 

The quarterly poll examining the 12-month outlook for the major asset classes and sectors showed that the net sentiment towards equities had increased to 56 per cent from 21 per cent over the past 12 months. The 98 CIOs who took part highlighted three key risks that face investors in 2025, namely trade wars, inflation and equity sector concentration caused by unease, overvaluations and the dominance of a few companies, creating potential systemic risks.