By Annabel Brodie-Smith
Well it’s only three weeks since the last issue of Compass but it feels like a lot longer!
So much has happened - there was the Queen’s dignified state funeral on Bank Holiday Monday. Then there was the mini-budget which turned into a maxi-budget, followed by last week’s dramatic market fall-out with bond yields soaring, pension funds getting caught in a doom cycle of liquidation and the Bank of England stepping in to buy bonds. This week, thank goodness, has been much calmer. I have been in the beautiful island of Guernsey for our Channel Islands conference where our directors always give us a warm welcome. And there’s a relaxing view of a beach even if I have been glued to my laptop and mobile. With all this going on, please do come to our first private investor event, The Investment Company Showcase on 28 October at the Novotel London West in Hammersmith from 10am to 4pm. You will be able to hear from over 30 fund managers and it will be a great opportunity to ask questions. We have experienced managers on the agenda like Paul Niven – F&C Investment Trust, Job Curtis – City of London Investment Trust, Sue Noffke – Schroder Income Growth and Bruce Stout – Murray International. Attendance is free for Compass readers with the promotional code COMP22 so please do book your ticket. This month Ian Cowie has jumped in at the deep end to analyse the mini-budget, “few full-blown budgets make as much of an immediate impression on investors as Chancellor Kwasi Kwarteng’s mini-budget.” There was some very good news for venture capital trusts (VCTs) as the Chancellor extended the VCT and EIS schemes beyond 2025. There was a concerning ‘sunset clause’ in VCT legislation which would have ended the 30% up-front income tax relief from 6 April 2025.
Kwasi Kwarteng’s promise to extend the schemes is reassuring for investors but is also excellent news for the younger companies which VCTs invest in. This week we released research which showed VCTs have invested £1.7 billion in 530 small, growing businesses over the past five years – clearly a boost for the government’s growth agenda. With all this doom and gloom around we thought we’d better take a look at how investment companies have performed through recessions. Thankfully this lifted our mood as the results were better than expected.
"If you had invested at the start of each of these downturns, you would be sitting on a positive return within three years (and in the case of the 2020 recession, after only 11 months)."
We had a look at the returns of the average investment company during the last three UK recessions: the early 1990s one, the global financial crisis, and the ‘blink and you’ll miss it’ Covid recession of 2020. The results are encouraging. If you had invested at the start of each of these downturns, you would be sitting on a positive return within three years (and in the case of the 2020 recession, after only 11 months). Since the launch of the first investment company in 1868, investment companies have weathered a total of 12 UK economic downturns, including the Great Depression of the 1930s and the recessions of the mid-1970s which were characterised by stagflation and high commodity prices. They have a permanent capital structure, which allows their fund managers to invest for the long-term, helping investment companies ride out the tough times. Finally, Faith Glasgow takes a look at how energy prices affect Renewable Energy Infrastructure investment companies. Clearly, energy prices have been top of the news agenda since the sad war in Ukraine began earlier this year and one of our readers wanted to understand the impact of rising energy prices on the renewable energy sector. Recently we have had some lovely autumnal days and the trees are looking beautiful. October is my birthday month so we are soon escaping on a last-minute deal to Crete for some half-term sunshine. I will be back with a suntan (definitely wishful thinking!) for The Investment Company Showcase on 28 October and look forward to meeting some of you there. Hopefully October will be a calmer month… Annabel Brodie-Smith Communications Director, AIC
