by Nick Britton
Nick Britton
These are testing times. Not just in the general sense that they are difficult, but in the more particular one that they are testing us.
There’s so much to do, from coronavirus contingency planning to explaining what’s happening in markets to clients. There’s the usual flurry of the tax-year end and, on top of that, the government gave us a Budget to think about this week.
But the testing I’m thinking of is more on a psychological level. What is the correct response to a market meltdown induced by a new form of flu that poses grave risks to the economy as well as our health?
I’ve seen the full spectrum of responses in the last few weeks – I’m sure you have too. On the one hand you have total complacency, on the other total panic. And everything in between – anxiety, frustration, denial, neurosis, gallows humour. I’ve certainly seen enough to know that effect of the virus on people’s mental health – while unlikely to be fatal – could be significantly detrimental.
One of the challenges is dealing with other people’s responses. Human nature being what it is, it’s highly likely that these will seem less measured and reasonable than our own. But this virus is likely to impact people in different ways, medically, economically, psychologically. My reasonable could be your complacent.
The market’s disturbing downward lurches provoke similar dilemmas. It’s all very well for me to talk about buying opportunities, with my 20-year time horizon till retirement. But what if someone is two years away? Hopefully they have a good financial planner, but for some people, that won’t altogether expunge their sense of anxiety as they read about billions being “wiped off” the stock market.
We’re taking a resolutely long-term view in Spotlight – as we always do. In this month’s issue, we look at which investment companies would have made you an “ISA millionaire” had you invested your entire annual ISA limit in each company since 1995. Now I’ll be the first to admit there are downsides to a single-company ISA portfolio, but it is a vivid illustration of the wonder of compounding, not to mention the ability of the investment company structure to power long-term returns. And with the Chancellor increasing annual JISA limits to £9,000 from next year, it seems the Treasury’s love affair with the ISA structure in general has survived another change of government.
We had a trio of UK Smaller Companies managers in our office earlier this week – Jonathan Brown of Invesco Perpetual UK Smaller Companies, Stuart Widdowson of Odyssean Investment Trust, and BlackRock Throgmorton’s Dan Whitestone. Given that they are all investing in the same sector, the three of them could hardly have been more different in their style and approach. All of them, however, found reasons for optimism about the sector amid the worries about coronavirus, the slowdown in the domestic and global economy, and the continuing uncertainty surrounding our trading relationship with the EU.
It’s almost always a good time to be investing in UK smaller companies. Invesco’s Jonathan Brown points out that since 1955, UK small-caps have outperformed their larger cousins about three-quarters of the time. Over the past 65 years, an investment of £1,000 has grown to £1.2 million if invested in the FTSE All-Share, but a much nicer £7.8 million if invested in UK smaller companies, as represented by the Numis Smaller Companies Index. The dynamic companies behind these returns are based all over the country, and government measures to support regional development could create more opportunities for Jonathan, Stuart, Dan and their many competitors.
I’ll leave you with one other thought to ponder on. I don’t often wade into the active-passive debate, as I think it’s best left to academics and zealots. But over the past ten years, the average company in the AIC UK Smaller Companies sector has returned 303% (to 28 February) compared with a return of barely half that (156%) for the FTSE Small Cap index. This is one asset class in which going passive could leave you poorer.
Stay healthy, stay optimistic.
Nick Britton, Head of Intermediary Communications, AIC
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Wednesday 22 April 2020, 14:00-16:15 – Brighton (Hilton Brighton Metropole, Kings Road, Brighton BN1 2FU)
Thursday 23 April 2020, 14:00-16:15 – Tunbridge Wells (The Spa Hotel, Mount Ephraim, Tunbridge Wells, Kent TN4 8XJ)
Wednesday 29 April 2020, 9:45-12:00 – Chelmsford (The Ivy Hill Hotel, Writtle Road, Margaretting, Chelmsford, Essex CM4 0EH)
Thursday 30 April 2020, 9:15-11:30 – London (The AIC Offices, 9th Floor, 24 Chiswell Street, London EC1Y 4YY)
Tuesday 5 May 2020, 14:00-16:15 – Salisbury (Holiday Inn Salisbury-Stonehenge, Mid-Summer Place, Amesbury, Solstice Park SP4 7SQ)
Wednesday 6 May 2020, 9:45-12:00 – Southampton (Meon Valley Hotel Golf & Country Club, Sandy Lane, Shedfield, Southampton SO32 2HQ)
Thursday 7 May 2020, 14:00-16:15 – London (The AIC Offices, 9th Floor, 24 Chiswell Street, London EC1Y 4YY)
Thursday 14 May 2020, 14:00-16:15 – Cambridge (Hotel Felix, Whitehouse Lane, Huntingdon Road, Girton, Cambridge CV3 0LX)
Tuesday 19 May 2020, 14:00-16:15 – Knutsford (The Cottons Hotel & Spa, Manchester Road, Knutsford WA16 0SU)
Wednesday 20 May 2020, 9:00-11:15 – York (Principal Hotel York, Station Road, York YO24 1AA)
Wednesday 20 May 2020, 14:00-16:15 – Sheffield (Copthorne Hotel Sheffield, Bramall Lane, Sheffield S2 4SU)
Thursday 21 May 2020, 9:45-12:00 – Leicester (Leicester Marriott Hotel, Grove Park, Smith Way, Enderby, Leicester LE19 1SW)
Tuesday 2 June 2020, 14:00-16:15 – Exeter (Mercure Exeter Rougemont Hotel, Queen Street, Exeter EX4 3SP)
Wednesday 3 June 2020, 9:00-11:15 – Bristol (Aztec Hotel & Spa, Aztec West, Almondsbury, Bristol BS32 4TS)
Wednesday 3 June 2020, 14:15-16:30 – Cardiff (Clayton Hotel Cardiff, St Mary Street, Cardiff CF10 1GD)
Thursday 4 June 2020, 9:45-12:00 – Tewkesbury (Hilton Puckrup Hall, Puckrup Lane, Tewkesbury GL20 6EL)