How the FTSE has doubled

How the FTSE has doubled

It has not been the best-performing fund, however – far from it. For if you had been brave enough to chart unknown waters back in 2003 you would be sitting on an incredible return of 890pc. The fund that managed to turn a £1,000 investment into nearly £10,000 is Invesco Perpetual Latin American.

Latin America was the place to be – if you chose the right fund. The commodity-driven region has boomed in the past 10 years, delivering the top three performing funds across all sectors over that period. Threadneedle Latin America returned 684pc and Scottish Widows Latin America is up by 672pc.

The best sector, however, was China, whose average fund rose by 418pc over the past decade. The second-best performing fund sector was, unsurprisingly, global emerging markets, which managed 380pc on average. Smaller companies did well too, in particular Marlborough Special Situations, which grew by 604pc.

Gary Reynolds of the wealth manager Courtiers said the extraordinary development of the big emerging market economies such as Brazil, India and China was reflected in extraordinary returns from their stock markets.

“All three delivered returns of around 20pc a year, over twice as much as the FTSE 100. To put it in context, the FTSE 100 would have turned £1,000 into £1,523 over the period; an investment in Chinese shares would have turned that £1,000 into £4,800, or more if you allow for the appreciation of the yuan [China’s currency], which rose by more than 3pc a year against the pound.”

But he warned investors not to expect similar returns over the next 10 years.

“Brazil, India and China will need to move from being low-wage economies to more quality industries if they want to continue to close the gap with the developed West and the US in particular,” he said.

It wasn’t all smooth sailing. Some funds have crashed and burned – with the worst-performing sector returning just 20pc, which has been more than wiped out by inflation over the decade.

These were cash funds, which are offered as alternatives to ordinary savings accounts but invest in a range of financial products.

Also on the worst performers list were bonds, investments that are loans to companies and pay a fixed return. UK corporate bond funds returned 46pc and gilts – British government bonds – delivered 49pc, with much of the gain delivered during the financial crisis, when gilts were perceived as a safe haven.

The property market crash in 2008 and Japanese stagnation also affected investors’ pockets. The Aviva Property Trust has returned only 21pc over the past decade, and Threadneedle Japan has made just 26pc. The worst fund of all, however, was Manek Growth, run by Jayesh Manek, a former chemist who won a share-picking competition and set up a fund. It invests in British shares but could manage only a 20pc return.

Of course, amid the doom and gloom of 2003 it was difficult to predict which investments would fly and which would fail over those 10 years.

“If you have the benefit of perfect 20/20 hindsight, you know when markets bottom out, and life as an investor is easy,” said Richard Marwood, an Axa fund manager.

“Sadly, life isn’t generally like that, and so investors will sometimes find that they have invested at less than opportune times. That can still be OK, provided that they have both a strong stomach for volatility and a genuinely long-term investment horizon.”

With that in mind, where will the big gains of the next decade be found? Again, it is a case of being a contrarian investor, daring to take a punt on an unloved, undervalued sector. We may be in the midst of a bull run, so equity investors looking to put money in for a 10-year period could still be well rewarded.

Andreas Zoellinger, a BlackRock fund manager with a strong track record, said there were plenty of undervalued opportunities in Europe for investors looking for long-term prospects.

“The European equity market looks cheap, compared with its own history but also when contrasted with other asset classes, particularly fixed income [bonds],” he said.

“As political risks recede and economic indicators improve, we remain confident that the value of European equities will rise over the next years. There are several highly interesting themes we are currently exploring, all of which we see as long-term investments.”

Mr Zoellinger likes the pharmaceutical sector and also infrastructure companies, tipping the Italian toll-road firm Atlantia.

He said income seekers as well as growth investors should look to Europe, as balance sheets outside the banking sector remained strong and opened up the potential for significant dividends for investors.

Mr Reynolds said investors should consider avoiding the things that had done well over the past 10 years in favour of those that hadn’t.

“Taken to the extreme, a portfolio comprising HSBC, Barclays, Lloyds and RBS would appear attractive,” he said, “but only if you have the stomach for volatility.”

Finance News – Business news from the UK and world

Leave a Reply

Your email address will not be published. Required fields are marked *