Lost decade for equities

UK equities remain a force to be reckoned with despite a degree of negative sentiment towards the market, according to both fund managers and pickers.

Lost decade for equities


While the FTSE 100 remains below the seven-year peak of 2007, annualised real return from the FTSE All-Share Index over the past ten years has been 6%, higher than that achieved over the past 20 years (4.8%) and 50 years (5.3%).

Rob Morgan, Investment Analyst at Hargreaves Lansdowne, said: “There is a lot of concentration on the level of the index, which points to the idea we’ve made no progress as we’re still below the high reached by the end of 1999. However, that misses the return from dividends, which has been very good, and when re-invested has again produced excellent returns.”

Data provided by Ignis, meanwhile, shows that total returns from the UK equity market have outpaced many other equity markets both over the short and long term, despite share price volatility caused by the turmoil in Europe. The FTSE All-Share Index was 2.0% ahead of the S&P 500 Index in sterling terms over the course of 2012.

Gary Potter, fund manager at Thames River, commented: “I keep hearing about the lost decade for equities, and it’s absolute rubbish. It’s all down to perception, and at the moment we’re in a big bubble of risk aversion, the biggest I’ve ever seen. The truth is that the safe investments aren’t actually as safe as they are perceived to be, while the so called riskier investments are much less risky than assumed.

“Investments need to be considered over the long term, instead of looking at the short term figures which suggest that equities are underperforming compared to the less risky investments. The fact remains that it pays to take risks over the long term.”

Investor appetite

A recent YouGov survey revealed that 71% of investors are not prepared to take any risk at all with their investments. Potter commented: “They will all be wrong! People are turning away from equities, having had several shocks to their portfolios, but long-term investment strategies need to incorporate a level of diversified risk.”

Others, it seems, are still keen to invest in equities, but are looking to further diversify their portfolios to spread the risk. Morgan stated: “There is more interest in global equities, and there are certainly more funds available now, but appetite for UK equities remains, especially among those not looking to take risks when it comes to currency.”