Investors who picked the right assets to hold in funds over the past decade received handsome rewards – with the top performers returning more than 140 per cent. But those who made the wrong choice could have lost half their original investment. So FT Money has analysed the best – and worst – performing fund sectors of the past 10 years, as ranked by the Investment Management Association.
Emerging markets have been the success story of the noughties, as a credit-fuelled consumption boom in the west was fuelled by production in the east. Investors who put their money into global emerging markets funds at the end of 1999 are now sitting on a tidy return of 142 per cent. The sector was driven by strong growth in the “Bric” countries – Brazil, Russia, India and China – which also saw their own middle classes grow and consume products from the west. Peru was the best performing stock market of the past decade, with a rise of 850 per cent.
The success of commodities funds, which invest in companies producing gold, copper and zinc, is no surprise, given emerging markets’ outperformance. The two are very closely linked, as emerging markets influence both demand and supply of commodities. Russia is a major oil and gas supplier, while Chile is a big copper producer. China has been importing commodities, notably copper, in its construction boom. Specialist funds, many of which are commodity focused, are up 103 per cent.
UK index-linked gilts
Perhaps surprisingly, given historically low inflation, an investment in UK index-linked gilts would have served investors well this decade. These bonds, which make inflation-linked payouts, produced a 65 per cent total return. This proved competitive because many other sectors performed poorly. Index-linked gilts have done well in the past two years as investors have fled to safer assets amid fears over inflation.
Technology was the worst performing sector of the decade: £1,000 invested in a tech fund on December 31 1999 would now be worth just £448 on average. This is mostly down to the dot-com crash in 2002 when overvalued tech stocks collapsed. But the sector’s poor performance has not stopped analysts recommending it (see box below).
The poor showing for funds that invest in North America over the decade – returning just £792 to investors on an original £1,000 investment – is tied to the tech story. Many global tech companies are based in the US and make up a larger part of the country’s index than similar companies in the UK. The US has also been hit by bank failures.
Investments in Japan are down 40 per cent over the past 10 years, hampered by a rising yen that has harmed exports. The country has still not recovered from its stock market bubble in the late 1980s, which precipitated a lengthy period of deflation and zero interest rates. The domestic stock market has also lagged other world indices.
Investors who preferred less liquid assets would have beaten most funds over the past decade. Rare, high-quality stamps have increased 70 per cent since 2005, according to Ewen Cameron Watt at BlackRock.
Fine wine prices, as measured by the Liv-ex Fine Wine Investables Index, are up 176 per cent over the decade. In fact, the best investment of all was a case of Lafite Rothschild 1982, up 876 per cent.