by Nick Britton
Nick Britton
What were your best investments of the 2010s? Our top performing sector was Biotechnology and Healthcare, soaring above everything else with a 491% return.
The second best sector is perhaps more surprising. Despite the decade’s second half being overshadowed by Brexit uncertainty, UK Smaller Companies delivered a return of 379%. Also among the top ten of the 2010s is UK All Companies, placing seventh with a 259% return. Meanwhile, the average investment company delivered a respectable 198%, nearly trebling investors’ money.
It’s interesting to contrast these numbers with the feverish level of worry that the last few years, in particular, have given investors. We have worried about quantitative easing, trade wars, left-wing governments, right-wing governments, environmental catastrophe and stagnant productivity growth. We’ve worried about Chinese debt levels, the possible breakup of the eurozone and whether a tweet from Donald Trump will start a war. And we’ve even worried just because the market has gone up for so long.
I’m not saying that these worries have gone away, or that people have been wrong to worry about them, or even that one or two of them won’t come back to haunt us this year. But there does seem to be a disconnect between the amount we worry about these things and the impact they actually have on long-term stock market returns. And quite possibly, what finally clobbers this bull market will be none of the above.
If you are the sort of person who cares about the investment company industry – and, as a Spotlight reader, you just might be – 2019 was a pretty healthy year for us. More money was raised by existing companies in so-called secondary fundraisings than ever before, some £7.4bn, with the Renewable Energy Infrastructure sector taking £1.8bn of this. IPO activity was muted, but this did not prevent investment company assets hitting a record £200bn during the year.
More importantly, though, we saw 41 investment companies cut their fees in 2019. This included six investment companies that introduced tiered fees for the first time, in a year when CFA UK released a report that argued tiered fees were “best for retail investors” and “an effective way of aligning the interests of managers and investors”. Nearly two-fifths of all investment companies excluding VCTs have tiered fees, and among the investment companies to introduce them in 2019 were F&C Investment Trust, UK Commercial Property and 3i Infrastructure.
The year will, of course, be remembered for the collapse of Woodford Investment Management. There is little more to say on that at the moment, except to mention the Bank of England report on open-ended funds that hold illiquid assets. This report suggests that a combination of longer notice periods and discounted prices for investors choosing to exit funds could be used to reduce risks to the financial system and investors. It’s a rather complicated solution – well, it’s not really a solution at all, more a set of principles that could be challenging to put into practice – but it does at least acknowledge that things can’t be allowed to go on as they have been, something that seems to have been widely accepted. We will continue to argue for our much simpler solution of “reliable redemption” to ensure that open-ended funds offering illiquid asset exposure do not create systemic risk.
The ability to invest in illiquid assets without compromising liquidity for investors is one of the great benefits of the closed-ended structure, which David Prosser enumerates in Spotlight this month. It’s an advantage not lost on Gary Moglione of Seneca Investment Managers, who has outlined for us how he uses closed-ended investment companies to access a range of assets that provide diversification beyond the traditional equity-bond mix that he argues “is no longer sufficient to guard against the vicissitudes of the markets”.
I will be seeing some of you at the VCT Showcases in London and Knutsford later this month. Still time to book for these if you haven’t already. We’ll be in touch soon with dates for our 2020 investment trust workshops.
Nick Britton, Head of Intermediary Communications, AIC
15 January 2020 VCT Showcase (London) Organised by Intelligent Partnership, VCT Showcase offers the opportunity to hear from several VCT managers at one event. There’ll be three-minute elevator pitches followed by 15-minute presentations and a panel discussion hosted by Nick Britton of the AIC. Find out more.
21 January 2020 VCT Showcase (Knutsford, Cheshire) Organised by Intelligent Partnership, VCT Showcase offers the opportunity to hear from several VCT managers at one event. There’ll be three-minute elevator pitches followed by 15-minute presentations and a panel discussion hosted by Nick Britton of the AIC. Find out more.