The top performing funds over 20 years
We were suffering the after-effects of a decade of greed and excess, and the economy was facing a torrid time. Meanwhile, we zipped ourselves into our drainpipe jeans and listened to Kylie Minogue and the Stone Roses.
Apart from the fashion and taste in music, in some ways things seem little different since the first issue of Moneywise magazine hit the newstands in 1990.
But the intervening period has seen massive changes in economic and market fortunes across the world.
"It's a cliché, but the past 20 years have been a story of two very different decades, with hugely contrasting performance in terms of stockmarket fortunes," says Gavin Haynes, managing director of Whitechurch Securities.
After the initial recovery from the recession, the second half of the 1990s was a period of almost unparalleled prosperity, fuelled by low interest rates, and culminating in the tech boom.
Over the 10 years from July 1990, the FTSE 100 delivered close to 300% total return, and on the last day of 1999, it ended just shy of 7,000.
The subsequent decade has been another story entirely. Haynes says: "It has been much more challenging for investors."
The bursting of the tech bubble, the shock of 9/11, and the impact of corporate scandals in the US such as Enron and Worldcom shattered investor confidence.
By 2003 the markets had halved. Then we saw a gradual recovery, before the global financial crisis brought markets to their knees again.
Jason Witcombe, an adviser with Evolve, says: "The last decade has been pretty miserable." In fact, it has been one of the worst decades for stockmarket investment in history, with the index down 12% in the last 10 years.
Only if you reinvested dividends would you have made any money – at around 20%.
Making money in the noughties has therefore been quite a challenge. On the other hand, with the FTSE 100 up 124% from 1 January 1990 to 1 January 2010, to make money over the past two decades simply required investors avoiding the most common pitfalls.
These included ploughing too much into any single fund, asset or sector; poor market timing; and picking the wrong funds.
So which funds have proven to be the best performers over the last two decades, where should investors have had their money, and what potential do these funds hold for the next 20 years?
The best performer of all over this period is the specialist Schroders Smaller US Companies fund, which delivered 2,220%.
Haynes says: "It shows the resilience of the US market, because smaller companies are more domestically focused. Taking the past 20 years as a whole, the US has been at the forefront of the global economy."
Patrick Connolly, spokesperson for AWD Chase de Vere, adds: "This is a strong, sensible team. They don't take big risks and have avoided the areas that have gone wrong."
Haynes is confident about the potential of this fund: "The US has an exceptional record from the corporate sector for innovation and it has produced some of the best global brands.
"The nature of the economy lends itself to innovation and making money, and it will continue to have a very important place."
Other top performers over this time are equally specialist. Second in the performance table is BlackRock Gold and General, delivering 2,215%. This has boomed with the gold price over the last decade.
Haynes says: "The fund invests in equities, but the whole concept is to benefit from the gold price." He warns, however, this is a tough one to call for the future: "Gold is a difficult investment to predict because it's very speculative.
"If you choose this fund, you should bear in mind the high level gold is at right now – so it should be a small part of your portfolio."
The third best performer over 20 years is Gartmore China Opportunities, delivering almost 1,800%.
Darius McDermott, managing director of Chelsea Financial Services, says: "China has been the phenomenon of the last decade. It's in the process of urbanising and its GDP growth has been phenomenal."
The experts warn that recent growth rates may not necessarily continue in the short term and there's a risk that a bubble may have developed.
However, Haynes says there's no arguing with the fact that emerging economies in Asia are well placed for growth over the next two decades. "I believe China has a place for the long term in a well-diversified portfolio," he says.
Fourth in the table is Scottish Widows American Smaller Companies, delivering almost 1,600%. It's another beneficiary of a strong management team, allied with the strength of the US smaller companies sector.
McDermott says: "The US is the most efficient market in the world, so the real way to get outperformance is by investing in smaller companies.
"These get less coverage by the brokers, so their potential isn't necessarily priced in. They also have the most potential for growth, if you get it right."
Fifth on the list is AXA Framlington Health, which delivered just over 1,300% over two decades.
Haynes says: "At the moment, healthcare is attractively valued. It's traditionally a non-cyclical area because it's a necessity more than a luxury, and there is a long-term story in terms of demographics, with the global shift to an ageing population."
Clearly, there has been big growth in specialist funds, but Connolly warns this doesn't mean investors should flock to this sector.
While these funds tend to dominate the top of the performance tables, they do so by taking more risk, so on the flip side, specialists make up most of the funds around the bottom of the performance tables too.
It's worth considering more generalist funds as well. Top of the UK Growth list is Threadneedle UK, which made just under 1,250% in the past 20 years, something of a surprise to some of the experts.
"It has undergone a vast number of manager changes," says Haynes. "But it shows the benefits of an active manager in the UK, provided there is strong management in place."
Connolly says the fund is in this position because it has managed to avoid the losers. "It has a sensible approach, buying good companies at reasonable valuations," he says.
"It isn't at the top of the table over shorter periods, but over time it avoids the worst of the falls."
Second in this area is the Fidelity Special Situations fund, at just over 1,100%, which came to prominence as a leading contrarian fund during an exceptional period with Anthony Bolton at the helm.
It underwent a period of underperformance during its transition to its current manager Sanjeev Shah. But Shah has since proven his ability in both up and down markets, and the fund remains one to watch in the future.
In the global equity sector, GAM Global Diversified was another surprise to the experts, having delivered almost 650%, with an equally contrarian approach but without being widely known.
"Andrew Green has been a very shrewd stockpicker and asset allocator," Haynes says. "The fund's a perfect example of the wisdom of looking at out-of-favour areas."
Adrian Lowcock, senior adviser at Bestinvest, adds: "GAM hasn't shot the lights out over the last five years, but it shows that consistent and stable returns make all the difference."
UK EQUITY INCOME
In the UK equity income sector, the top fund comes as no surprise to the experts.
Invesco Perpetual High Income, managed throughout this period by Neil Woodford, and delivering just over 1,100%, has a focus on investing in well-managed dividend-producing equities.
"By the end of 1999, Woodford was getting hate mail from investors for sticking to his principles and missing out on tech gains," Haynes says.
"But its long-term performance speaks for itself. In the last decade, he's become one of the highest regarded retail fund managers."
Connolly, however, sounds a note of caution about the fund's future: "You have to ask, with the amount of money in this fund can Woodford sustain this performance? And will he still be at the helm in another 20 years' time?"
If you invest in the fund, then, it's worth keeping an eye on its performance over the long run.
The best performers in Asia and the emerging markets have benefited from tremendous growth in this area, especially over the last 10 years.
First State Asia Pacific – the best performer in the Asia Pacific ex Japan sector – delivered over 1,250%, and Aberdeen Emerging Markets – the top emerging markets fund – delivered almost 730%.
Haynes says: "There are short-term concerns about over-exuberance, so I would warn against putting larger amounts of money in.
"But over the next 10 or 20 years, investors should have a significant investment in this area because of the global economic shift from the West to these markets."
Overall, one key theme emerges. "Almost all of these funds have very stable managers in place who are very highly regarded, and who don't take huge risks but deliver solid returns," says Haynes.
McDermott agrees that the top performers on this table illustrate that "identifying good managers and sticking with them is a strong strategy. It also shows the power of long-term equities.
For each of these funds you cannot guarantee short-term performance: if you take Neil Woodford, his fund has hugely underperformed in the last three years because he took a defensive position, but if you had given him a little bit of money over a long period, he would have turned it into a lot of money."
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.