Performance trends offer lessons: Five years after the crash, Maria Scott looks at the prospects for unit trusts

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The Independent Online
YESTERDAY's base rate cut boosted hopes that as the fifth anniversary of the 1987 market crash passes, the next five years will have more to offer than the past five - at least in Britain.

According to figures from Micropal, the performance-tracking service, the averagely performing unit trust lost more than 8 per cent of its value in the five years from just before the 1987 crash and the beginning of this month. But for those who invested just after the crash there is an average profit of 23.9 per cent.

Peter Edwards of Premier Unit Trust Brokers said yesterday: 'Interest rates are coming down and recovery will come and the market will celebrate. Prospects for investors in the UK look very bright, especially for bombed-out small company funds and also for income funds.'

Mark Dampier, an adviser with Whitechurch Securities, said that even if investors still do not like the idea of investing in equities there is an argument for income funds and fixed-interest funds. A number of unit trusts are offering yields comparable with the returns from building societies.

Investment experts are not unanimous in their enthusiasm for the UK market, however. Sileanne Wootton, a senior fund manager at Gartmore Investment Management, said: 'We will need an extended period of falling interest rates before we get a significant increase in equity prices.'

But anyone thinking about sinking money into investment or unit trusts now can draw some lessons from trends of the past five years.

It is hard to escape the conclusion that a soundly constructed portfolio was a good investment before the crash and remained so afterwards. This does not necessarily mean that the managers of the worst-performing funds were all incompetent. There is no doubt, though, that many pre-crash funds were put together by managers whose only experience was of a booming stock market. Many laggards are now under new management.

The lists of best- and worst-performing funds from 12 October 1987, just before the crash, and 23 October 1987, just after, have many common names.

Three of the five investment trusts among the top five performers since just after the crash - Manakin Holdings, Candover Investments and M&G Dual's income shares - are also among the top five performers in the five years from just before. The list of the five worst performers is the same as before the crash, albeit with the names in slightly different order.

Profits on the best performers are greater over the five years since the crash than on the five years from just before. But there is remarkably little difference in the losses on the worst performers over the two time spans. A pounds 100 investment in Waverley Australasian Gold on 12 October 1987 was worth pounds 13.60 at the beginning of this month. If you had invested on 23 October 1987 you would now have pounds 17.90 left.

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