20 years of investing in the 21st century

10 December 2019

I’m not sure where the past 20 years have gone. But here we are, nearing the end of the second decade of the millennium. And in the investment world it’s certainly been eventful.

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It started with the tech bubble bursting and the euro coming into circulation. We have had two bear markets, two bull markets and the global financial crisis. Bitcoin became all the rage; China became a major market; and the UK voted for Brexit. The list goes on.

I thought it might be interesting to take a look at what the best – and worst – performing investments have been over the period. Some may surprise you.

Best performing funds and trusts

Over the past 20 years, the best funds have been those investing in Chinese equities. The average fund in this sector is up 504%. Next are those investing in European smaller companies (up 352%), followed by our own UK smaller companies (330%). 

The best performing open-ended fund over all is Marlborough Special Situations (up 1059%), which has been managed by Giles Hargreaves for the entire period. He has turned £1,000 into £11,591.

Rather scarily, the average Japanese equity fund has returned 2% less than the average cash fund. It just goes to show that a prolonged deflationary environment can really stifle investment.

The best investment trusts in contrast have been those investing in Asian smaller companies(up 1482%). Trusts investing in property securities were second (1467%) and those investing in biotech and healthcare third (931%). At the other end of the scale, the average venture capital trust  (VCT) has lost 60%.

The top performing investment trust has been TR Property Investment Trust (up 1670%). Run by Marcus Phayre-Mudge since 2004, it has turned £1,000 into £17,745.

Each decade in more detail

Looking in more detail at each of the two decades also makes for interesting reading. The first was dominated by technology stocks tanking (the average fund fell 57%), commodities booming (gold rose 274% and oil was up 219%), and emerging markets heading off to the races (the average emerging markets fund rose 240%).

In contrast, the UK stock market was up a mere 19%, while the US stock market fell 12%. And if you ever needed proof that bonds have enjoyed a prolonged bull market, look no further: the best performing bond sector was UK index-linked gilts (boring, safe government bonds), where the average fund returned 62%.

The second decade saw a reversal of fortunes. The commodities super-cycle came to an abrupt end and emerging markets funds have lagged returning 65%.  The UK stock market is up 94%, while the US market is up 292%. Technology funds are up 288% on average – but it did take them until 2016 to recover their losses. The exception has been those index-linked gilt funds. They rose a further 120% over the past 10 years.

What will the next 10 to 20 years hold?

The only thing I can say with real conviction is that bonds will not do as well. The high returns have been made because yields have fallen from around 5% to 0.7%. I cannot see them falling much lower.

I am pretty sure that emerging market funds – Asian equity funds, in particular, – will have their day in the sun once again. Fidelity Asian Opportunities is worth a look, as is Invesco Asian. I am also pretty sure Japanese equities will do better. Comgest Growth Japan is a fund I have come across recently that looks interesting, as is Baillie Gifford Japan.

However, the one enduring theme I think we will experience over the next two decades is the move towards more responsible investing. It is now or never really in terms of our environment, so if I am thinking about a better future for my children, a fund such as Pictet Global Environmental Opportunities could fit the bill perfectly.

Note: Performance figures are from FE Analytics.

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. Darius’s views and those of the investment professionals quoted are their own and do not constitute financial advice.