Nutmeg vs Vanguard: Best Passive Investment Option?

Nutmeg and Vanguard have popped up frequently on our investment platform reviews, and it makes sense to pitch both platforms against each other. It was only a matter of time before Nutmeg vs Vanguard made its way to Project Financially Free, and it’s certainly one of the toughest match-ups out there.

Vanguard is known for its evangelical focus on low-fee passive investing and their product suite consists of ETFs and portfolio strategies that are built on top of these ETFs. Nutmeg meanwhile offers the full spectrum – from its passive Fixed Allocation portfolios to its fully active Smart Alpha portfolios.

Both are very popular options for UK investors looking for a low fee option, who don’t have the time or the knowledge to go down the DIY investing route. So in the battle of Nutmeg vs Vanguard, which comes out on top?

The comparison exercise was not easy, but in our humble opinion, the end result is a tie. Each service excels in different areas, so your personal circumstances will determine which is the best for your needs.

Summary

Let’s Start

Comparing investment services is a never an easy task as there are many parameters to consider. Let’s get started.

What is Nutmeg?

Nutmeg is a well established UK investment platform that I’ve discussed before. That’s not to say it’s to everyone’s tastes, but it’s quickly become one of the leading names in the UK wealth management space.

It’s been around since 2011, and in the last decade, it’s brought passive investing to the masses with very competitive fees. Currently Nutmeg claims to have over £4.5 billion in assets under management and over 200k clients.

That said, if you prefer your savings accounts and wealth manager services to offer a little more scope for DIY investing, it might not always be the best fit for you. You may instead want to check out Freetrade or InvestEngine. For more details, please refer to our Freetrade review and InvestEngine review.

What is Vanguard?

Vanguard is the US investment behemoth with over $7 trillion in total assets under management on a global basis. Closer to home in the UK, Vanguard still has a massive 485,000 client base with a total of £15.2 billion in assets under management. They launched their platform in the UK in 2017.

Unlike Nutmeg, Vanguard offers something to all investors – it caters to both DIY investors and to those want a ready made solution. More on that below!

Nutmeg vs Vanguard: Products Available

So – which products can you actually invest in through Nutmeg or Vanguard? It’s worth looking in a bit more detail as to what you can actually do with these fund platforms.

Nutmeg Account Types

Nutmeg, offers lifetime ISAs, pension pots, stocks and shares ISAs, general investment accounts and Junior ISAs. On the whole, you can expect to start investing from as little as £500, though you can get started with a Lifetime or Junior ISA from £100.

Vanguard Account Types

Vanguard offers four mainline financial products for you to choose from. You can set up a pension, general investment account, stocks and shares ISA and junior ISA accounts with Vanguard. There’s a little bit less to choose from here, but only in the sense that there’s no lifetime ISA option.

What is the minimum investment amount?

Both Nutmeg and Vanguard LifeStrategy keep things relatively cheap and straightforward in terms of minimum investments.

The absolute lowest buy-in here is £100, meaning that providing you have three figures to spare, you can get started with either option. Of course, fees will vary, and I’m certainly going to consider which option is cheaper or better value for money a little further down.

However, there’s no need to worry about having much money to hand if you want to start with either option. Do keep in mind that you’ll need at least £500 for most of Nutmeg’s products, however, as it’s only the Lifetime ISA and Junior ISA that allows an initial investment of just £100.

With Vanguard LifeStrategy funds the minimum one off investment is £500, however you can also get started by committing to a regular monthly direct debit of at least £100.

Nutmeg vs Vanguard: Portfolio Options

Products are just the beginning. Both Nutmeg and Vanguard have different types of portfolios available to you depending on your preferences. While both services offer a different slant on how to set up a ready-made portfolio, both should appeal to a wide array of people, new investors included.

Let’s take a detailed look at their offerings.

Nutmeg Portfolio Options

We have in depth discussion on the portfolio offerings in our Nutmeg review article, so I’ll just summarize the key points here. If you want the detailed information, please do read that article.

With Nutmeg you have a choice of five standard types of portfolios to pick from. These are fixed allocation, fully managed, Smart Alpha, thematic, and socially responsible.

The fully managed option will give you a choice of ten levels based on risk, with some flexibility. Fixed allocation portfolios come in one of five risk levels. While socially responsible options will only invest your money in ethical resources and assets.

Fully managed portfolio bring in a layer of human involvement and judgement to overlay on top of algorithmic investing. The fully managed and socially responsible portfolios have ten risk levels to choose from.

If you’d like, you can even choose a Smart Alpha portfolio that’s backed by J.P. Morgan Asset Management. These portfolios contain globally diverse ETFs and are actively managed by a team there. There are five risk levels through this service.

Note that in all cases, a higher number indicates a higher risk level, which effectively means a greater allocation to equities, i.e. stocks, and a lower allocation to bonds. As we’ve discussed in our review article, a higher risk weighting also implies a lower allocation to the UK to cut down on FX related volatility.

Vanguard Portfolio Options

In the UK, Vanguard offers a product suite consisting of 86 funds which also covers the full gamut of index funds, ETFs, some actively managed funds and its multi-asset range.

Unlike Nutmeg, Vanguard caters to both the DIY and the Do-It-For-Me camps. The latter offering is a bit limited though. As discussed earlier, Nutmeg does not have an offering for the DIY crowd.

If you fall in the DIY camp and are already a Vanguard fan, there is comprehensive list of ETFs that you can buy directly in your portfolio. You don’t even need to have an account with Vanguard as you can directly buy these funds at ETF with any broker like InvestEngine, Fineco, or Hargreaves Lansdown.

If you need help picking out which ETFs to buy, we’ve got you covered with a list of the best Vanguard funds in the UK that you could buy for your portfolio.

However if you’re looking for someone to do the heavy lifting for you, then Vanguard’s LifeStrategy or Target Retirement series funds are actually a great choice. So, how do these Vanguard funds compare with Nutmeg?

Let’s dig in to that next.

Comparing Performance Between Vanguard and Nutmeg

Okay, so this is a long section. If you want just the summary, then please see the summary section below. Otherwise do keep reading for all the details. Let’s go!

Once you take into account all the risk levels and portfolio offerings from Nutmeg and Vanguard, it’s clear that the number of comparison points is simply too great.

In order to keep things manageable and relevant, it makes sense to compare both companies’ offerings on an apples-to-apples basis. As Nutmeg offers only managed portfolios, we limit the comparisons to Vanguard’s LifeStrategy series which are directly comparable.

We cannot compare with individual ETFs or with the Target Retirement series funds as those offerings target a very different customer. Vanguard also does not provide a representative portfolio for their managed ISA accounts, so we assume that the LifeStrategy funds are a good proxy.

Similarly, I do not include Nutmeg’s socially responsible series of funds here.

I like to compare performance data for at least a 3-year period but ideally 5 years or longer is better. While Vanguard does provide good data, unfortunately, Nutmeg does not provide performance data for different time periods.

I take a look at three comparison sets as we proceed here: 80% equity exposure and 60% equity exposure – as I believe these are likely the most popular products for both companies. I’ve also included the 100% equity exposure portfolio for those who want to maximize returns, but at the cost of higher portfolio volatility.

Performance Summary for Vanguard vs Nutmeg

Here are my conclusions from this analysis:

1. Nutmeg’s Fixed Allocation and Vanguard’s LifeStrategy series of portfolios are reasonably comparable in performance.
2. Vanguard’s reported returns appear on individual fund pages are higher than what you will achieve in reality as there are an additional 0.15% to 0.45% of management and account fees that need to be accounted for.
3. Nutmeg’s Fully Managed series of portfolios are a dud. I would avoid them.
4. Nutmeg’s Smart Alpha series of portfolios appear to be very promising. Although the track record is still less than 3 years, these are something I would be willing to consider for a portion of my money. If they accumulate a longer record of outperformance, I would be willing to allocate more there.

For the details, please continue reading below.

80% equity exposure

An 80% equity exposure corresponds a moderately aggressive growth profile. This is suited to those people who have a moderately high degree of risk/volatility tolerance and aim to grow their holdings over a long period of time.

Within this bucket Vanguard has the LifeStrategy 80% (LS) Equity Fund. Nutmeg has a number of offerings across their product suite – Fixed Allocation (FA) Risk Level 4, Fully Managed (FM) Risk Level 8, and Smart Alpha (SA) Risk Level 4.

Here’s the performance data for these funds after fees. It’s important to note that the LifeStrategy funds only have their 0.22% OCF fees (the fund fees) deducted in the numbers below. You will be charged an additional 0.15% to 0.45% of account and management fees, which must be deducted from Vanguard’s reported figures. More on this in the fees discussion further below.

Year	Nutmeg FA #4	Nutmeg FM #8	Nutmeg SA #4	Vanguard LS80
2022	-11.3%	-11.0%	-10.0%	-8.81%
2021	15.3%	15.4%	16.0%	14.44%
2020	5.5%	6.4%		7.68%
2019	18.2%	17.0%		18.06%
2018	-6.9%	-9.0%		-4.04%
5-Year Return CAGR	3.5%	3.1%	–	4.9%

The table below shows the most recent short-term performance data for the period ending July 30, 2023.

Year	Nutmeg FA #4	Nutmeg FM #8	Nutmeg SA #4	Vanguard LS80
Last 12M	5.3%	4.2%	5.5%	3.47%
Last 3-Years	7.8%	NP*		7.5%

In the last 3 years (36-month period ending July 30 2023), Nutmeg’s fixed allocation and was ever so ahead of Vanguard by 0.3% annualized. Once Vanguard’s additional account fees are factored in, the actual performance gap opens up further in Nutmeg’s favour.

We can’t get the trailing 5-year data as Nutmeg doesn’t make it available. The closest we can get is to compare the 5 calendar years of performance (from Jan 2018 to Dec 2022) by looking at the annual performance figures. Based on this, Vanguard is ahead by a reasonable margin, even if we deduct the full 0.45% of account and management fees.

Given that Nutmeg’s funds have outperformed in the last 12 months, we will have to see how the 5-year figure for the period ending Dec 2023 ends up.

Overall, at this point I think the net outcome here is a tie between the two companies, although with a bias towards Vanguard.

I would like to draw attention to Nutmeg’s Smart Alpha portfolio series as a hot new prospect. Although there isn’t sufficient data available (~2.5 years of track record), it seems that these portfolios are performing outstandingly well. I would keep an eye on these as these seem very promising. Once there’s a slightly longer performance track record, we can get more faith in them.

By the same note, it seems the Fully Managed series are actually the worst of the lot. It seems that Nutmeg’s investment team is actually detracting value!

60% Equity Exposure

A 60% equity exposure is appropriate for those who have only moderate risk/volatility tolerance in their portfolio. It’s also one of the most popular with retirees as it aims to preserve capital through volatile market conditions, while still allowing their funds to grow moderately above inflationary levels.

Within this bucket Vanguard has the LifeStrategy 60% Equity Fund. Nutmeg has the Fixed Allocation Risk Level 3, Fully Managed Risk Level 6, and Smart Alpha Risk Level 3.

Again, please remember to deduct 0.45% off Vanguard’s performance figures to get a like-for-like comparison with Nutmeg.

Year	Nutmeg FA #3	Nutmeg FM #6	Nutmeg SA #3	Vanguard LS60
2022	-13.90%	-12.6%	-10.4%	-11.22%
2021	9.80%	9.9%	11.2%	9.93%
2020	5.40%	6.2%		7.84%
2019	15.20%	12.8%		15.24%
2018	-5.50%	-7.1%		-3.10%
5-Year Return CAGR	1.6%	1.3%		3.3%

The table shows the most recent short-term performance data for the period ending July 30, 2023.

Year	Nutmeg FA #3	Nutmeg FM #6	Nutmeg SA #3	Vanguard LS60
Last 12M	0.5%	0.8%	2.8%	0.41%
Last 3-Years	3.04%	NP*		3.71%

For these funds, the balance tilts more decisively in favour of Vanguard. Their funds have outperformed not only on the most recent 3-year basis, but also in the last full 5 calendar years by a substantial amount.

When looking at these performance metrics, the balance shifts heavily in favour of Vanguard.

However I must again call out the outstanding performance of the Smart Alpha series which have had a promising start. Their outperformance relative to Vanguard here is definitely appreciable.

Once again we see that Nutmeg’s Fully Managed series continues to underperform.

100% Equity Exposure

Finally, we come to the 100% equity exposure funds. As one would expect, these have the highest volatility of all the offerings but over the longer run also do provide the highest level of return. These funds are great for people who have a high tolerance for portfolio volatility and are mainly interested in growing their portfolio over the long-term.

Within this bucket Vanguard has the LifeStrategy 100% Equity Fund. Nutmeg has Fixed Allocation Risk Level 5, Fully Managed Risk Level 10, and Smart Alpha Risk Level 5.

Year	Nutmeg FA #5	Nutmeg FM #10	Nutmeg SA #5	Vanguard LS100
2022	-9.5%	-9.6%	-9.5%	-6.25%
2021	20.2%	19.6%	20.5%	19.15%
2020	6.1%	7.2%		7.22%
2019	21.3%	18.7%		21.03%
2018	-8.2%	-9.8%		-5.04%
5-Year Return CAGR	5.1%	4.4%		6.6%

The table shows the most recent short-term performance data for the period ending July 30, 2023.

Year	Nutmeg FA #5	Nutmeg FM #10	Nutmeg SA #5	Vanguard LS100
Last 12M	8.5%	6.7%	5.5%	6.6%
Last 3-Years	11.7%	NP*		11.38%

When looking at these funds, again we see a similar trend – Vanguard’s fund is doing worse than the Fixed Allocation on the most recent 3-year basis but is doing better on a 5-calendar year basis, even if we deduct the additional 45 bps of account and management fees.

On a net basis, I think we have a bit of a hung jury here and I’d say both have reasonable performance, but with a slight advantage to Vanguard. And finally, once again, we see the Smart Alpha series of funds doing much better in the short term and the Fully Managed series underperforming.

Vanguard vs Nutmeg – which is the cheapest?

Costs tend to be where many people compare Vanguard LifeStrategy and Nutmeg the most, and while on the face of it Nutmeg is the slightly pricier option, it’s worth taking a look at the fees you can expect across the board before getting started.

One important point to note is that investors must compare what returns they generate after all fees have been incorporated in to the performance data.

Vanguard Fees

Vanguard prides itself on being a refreshingly affordable investment platform, and I certainly couldn’t argue with that. They provide two options to investors:

1. Self-Managed Accounts – This includes stocks and shares ISA, general investment accounts, Junior ISA, pension accounts, etc. The fee charged is 0.15% of total assets (all account valued summed up) to a maximum of £375 annually. With the LifeStrategy series of funds in a self-managed account, where fund charges are 0.22%, your total fees would be about 0.40% to 0.41%.
2. Managed ISA – If you want help in managing your money, Vanguard offers a managed option for your stocks and shares ISA where Vanguard’s experts will work with you. The service fee is 0.30% of total assets. The total cost, including underlying fund fees, etc., is likely 0.60% to 0.65%.

The Managed ISA offering is directly comparable to the service level offered by Nutmeg. Note that the in the Managed ISA, you do not have control over what funds you buy. Vanguard will choose them for you based on your risk appetite and your goals.

Unlike Nutmeg, Vanguard does not offer a managed account services for anything other than the Stocks & Shares ISA, so that does limit your options a little bit.

Nutmeg Fees

Nutmeg’s fees vary based on which type of funds you invest in. As we’ve seen in the performance section, the only two series of funds that are worth considering with them are either the Fixed Allocation or the Smart Alpha series.

For the Nutmeg Fixed Allocation portfolios, there is a 0.45% fee on up to £100k, then just 0.25% beyond that amount. There’s also average fund costs of 0.21% and market spread costs of 0.04% on average. Including all the other embedded and underlying costs, your fees will be 0.70% up to the first £100k and then 0.5% thereafter.

The overall fees are higher on the Smart Alpha accounts, where the total adds up to 1.15% for the first £100k, but then drops to 0.75% thereafter. As I’ve mentioned earlier, the Smart Alpha series of funds are actual performing quite well and their returns exceed all other options considered here even after their higher fees.

My only reservation there is that the track record isn’t long enough to necessarily extrapolate these returns out in to the future indefinitely. So it’s something to keep an eye on.

Finally, Nutmeg’s Thematic Investing portflios have a 0.75% management fee.

Bonus Offer: Nutmeg 6 Months No Fees

If you want to take advantage of 6 months of no portfolio management fees with Nutmeg you can sign up via the link below. You must fund your account with the minimum amount and the promotional fee rate will be applied within 30 days. Note that when signing up you will still see fees presented during the on-boarding process. This will then be updated within 30 days of your funds first being invested and traded.

The long and short of it is that both platforms offer very competitive fees and some of the lowest available in terms of UK investment platforms. So if fees are a major consideration for you (as I think they should be) then you wont go far wrong with either Nutmeg or Vanguard.

Which service offers the best customer service?

With regard to user feedback, customer service, and ease of use, both investment platforms offer an excellent experience. Both have apps you can use on the go, and Vanguard in particular has upgraded its mobile offerings over the years to keep up with customer demand.

Beyond this, it’s worth noting that LifeStrategy or the Target Retirement series won’t hold your hand like Nutmeg. Vanguard expects you to know your risk attitude before you get started and you select one of the LifeStrategy funds accordingly. 

On the other hand, Nutmeg builds a profile around your answers to various questions and prompts, resulting in a suggested risk level. With that in mind, Nutmeg may still be the better choice for complete novices.

Is Vanguard or Nutmeg better?

Both Nutmeg and Vanguard have a lot going for them. After weighing the pros and cons of each service, we came to the difficult decision that the result is a tie. Overlaying a filter consisting of your personal skills, needs, and goals, will help swing your decision in the correct direction.

I feel Vanguard is best suited for those who have a general idea of how they want to invest, know their personal risk tolerance, and have planned out their financial goals. Vanguard’s Lifestrategy and Target Retirement series of funds are excellent set-and-forget products where you can pick one fund and own it for a long period of time. Just remember to keep contributing to your account regularly.

You can change your fund type based on major changes in your life. However beware of any tax implications that may arise from that if you are investing in a general investment account.

Vanguard offers the managed ISA account where they can help you do the heavy lifting in terms of planning and investing your portfolio. However if you want a managed service outside of the ISA, you’ll be out of luck with Vanguard.

You will like Nutmeg if you are someone who prefers help and guidance and generally prefer a Do-It-For-Me service. While Vanguard does offer their Managed ISA account, Nutmeg offers a managed service across all their account/product types.

Nutmeg’s Fixed Allocation series of portfolios are reasonably competitive with Vanguard’s LifeStrategy products. The latter have outperformed over a longer period of time, but we see that the Fixed Allocation series have done well in the most recent 3-year period. Additionally, Nutmeg’s Smart Alpha series of products appear to be very promising and are outperforming Vanguard’s funds even after their higher fees are considered.

Before You Go…

I hope you’ve found my rundown on the investment services from Vanguard vs Nutmeg useful!

Whether you’re aiming to become a millionaire or just trying to save £500 a month and just need some financial or investment advice from a top service, there are numerous options out there.

If you’re perusing the wider app scene and want to know my thoughts on other round ups, take a look at what I have to say about the other services on offer in the UK:

1. Nutmeg vs Moneyfarm
2. Moneyfarm vs Hargreaves Lansdown
3. Best Stocks & Shares ISAs for Beginners

Do leave us a comment or send a note if you have any questions or comments!