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Best performing funds and trusts since ISAs began

by LLB Editor
22nd Mar 21 10:55 am

Smaller Companies and Asian funds have dominated performance since 1999.

UK Smaller Companies have beaten the US stock market over that period while reinvested dividends make up 96% of FTSE 100 returns since 1999.

Laith Khalaf, financial analyst at AJ Bell, comments: “1999 wasn’t exactly an auspicious time to start investing. The tech bubble was about to burst, the split cap investment trust scandal was about to explode, and stocks were about to fall into a three-year bear market. But despite that, the first ISA savers have been rewarded by putting their best foot forward and investing money in the market.

“Over the last 22 years, the average fund sector has turned £1,000 invested into £4,257 today. There have been some spectacular returns from funds investing in UK Small Caps and Asian equities over the period too. Funds in the UK Smaller Companies sector have significantly outperformed the underlying index, showing the benefit of active management in picking out tomorrow’s winners from today’s stock market minnows.

“There has been much hullabaloo about the strength of the US stock market, but actually UK small and mid-caps have shown a clean pair of heels to the S&P 500 since 1999. They have also beaten the big blue chips of the FTSE 100 hands down. Indeed, if you look purely at returns from share price appreciation, the Footsie is barely registering a gain in 22 years. Thanks to dividends reinvested though, the total return on offer was 127.1%.

“The superior performance of smaller companies funds is apparent across all developed markets, so it might be a good idea for today’s investors to think small with their ISA portfolio. Recently investors have looked to cryptocurrencies and meme stocks to get rich quick, but they might instead consider the stunning returns provided by some smaller companies funds, given time to grow.

“In markets today there are clear resonances with 1999, with signs of bubbly behaviour in the price of Bitcoin and meme stocks, and a tech sector that has been on a tremendous run. The big tech titans of the US market are much more robust than many of the flimsy start-ups of the late 1990s, but their high valuations still give some cause for caution. However, investors can take heart from the long term returns that have been harvested since 1999 across all equity markets, despite turmoil in the first few years of the millennium.

“While the risk of falling prices might put some off investing in the stock market, they should consider the cost of missing out on gains too. With an economic recovery in sight and a powder keg of monetary and fiscal support scattered all over the place, it’s perfectly possible that markets will continue to climb upwards. And if inflation becomes a problem, share price appreciation and dividend increases can provide some protection that at current levels, cash interest rates do not.

“It’s important to keep balance in your savings, using cash for short term needs, and feeding money that can be left untouched for longer into the market. As ever, the ISA wrapper provides valuable protection from income tax and capital gains tax, meaning you get to keep more of the profits your investments make.”

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