How the biggest investment themes have changed over the past decade

20 February 2018

A decade can seem a long time in investing.

Ten years ago, Apple launched the iPhone and was trading at under $5 a share (today it is $172*), Northern Rock suffered Britain’s first bank run since 1866 as the global financial crisis began to take hold, and interest rates were still above 5%.

With the occasional wobble, stock markets had been rising for a relatively long time. From their low on 9 March 2003 to the end of 2007, the MSCI All Country World and FTSE All Share indices were up 99% and 128% respectively (source: FE Analytics. Total returns in sterling).

China was becoming an exciting investment trend with growing numbers of middle-class consumers. The MSCI China index rose 63% in 2007 – outperforming the broader global equity index more than five times over**.

Amid this, investors favoured certain funds over others. Star manager Neil Woodford’s Invesco Perpetual High Income was the most popular among our customers, and JPM Natural Resources had a strong following; we were in the throes of a commodity supercycle, with many investors believing that inexorably rising demand in emerging economies and constrained supplies of many commodities would put prices on a rising trend.

Another bias from 2007 that stood out was a preference for European equity funds, with Henderson European Growth, Neptune European Opportunities and Artemis European Growth all finding themselves in the list of the top 10 most popular funds.

How does this compare with where we are today? With interest rates falling from 5.75% in July 2007 to 0.5% in March 2009 and staying at these ‘emergency levels’ for the rest of the decade, the search for income has become a prevailing theme. Investors have been forced to take higher risks with their money to find a decent income. First into government and corporate bonds, before yields here too fell to historic lows, and then into equity income funds.

Global recession – and China’s move from industry to a service-led economy – also played a part in the fall of commodity prices. In the past 10 years, the spot price of brent crude oil has fallen by 46%***. Today, there are exciting investment opportunities in solar, wind and electric power. Infrastructure funds have embraced these market segments.

The Chinese consumer story has also evolved, but is still strong. There are big differences between consumer-led behaviour in China now. While their parents focused on improving living standards, young Chinese consumers were born into the digital age and, thanks to the one-child policy, are more used to the finer things in life. Tencent and Alibaba are two examples of exciting new businesses that have become ingrained in the lives of young adults.

A new trend yet to come to the fore 10 years ago is the rise of artificial intelligence. Fund launches in this space have increased in recent months.

Another notable change over the course of the decade is the fall in popularity of European equity funds. Not one of these has made it on to the top 10 list of most popular funds in 2017. Instead, investors have favoured global equity funds, especially those with an income-generating element. M&G Global Dividend and Artemis Global Income are both in the top 10, as is Rathbone Global Opportunities.

One of the few constants has been Neil Woodford, who remains popular among investors. He departed Invesco Perpetual High Income in 2014 and started up LF Woodford Income Focus (among other funds), which now tops the 2017 list.

Darius McDermott is managing director at Chelsea Financial Services and FundCalibre

*Source: Google Finance, 4 January 2018

**Source: FE Analytics, total returns in sterling, 1 January to 31 December 2007

***Source: FE Analytics, total returns in sterling, as at 3 January 2018 Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time.

Mr McDermott’s views are his own and do not constitute financial advice. 

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