Sitck with that investment

By CLARE HALL
Updated:

 

Received wisdom says that anyone wanting long-term investment growth must not ignore the stock market.

Records since 1918 show that over any 10-year period there is a 97% chance of shares outstripping all other investments.

The point seems to be proved by new data from the Association of Unit Trusts and Investment Funds. Its latest quarterly performance statistics show that £10,000 invested in an average UK equity income trust 10 years ago would have grown to £17,910 today while producing £4,800 in income along the way.

But performance can vary widely. In the past 10 years some investors have reaped returns of more than 400% while the less fortunate have received a measly 6%.

One problem is deciding when to sell. The first rule of investment is not to buy at the top of the market or sell at the bottom, but judging anything in between is tricky.

A look at the top 10 performing UK unit trusts over 10 years illustrates this. Over a decade the trusts have been hugely successful, but a year-by-year analysis reveals patchy performance alongside years of outstanding returns.

For example, over 10 years the St James's Place UK and General Progressive unit trust comes top in the UK All Companies sector. Lucky investors who chose this fund at launch have seen their investment grow by a massive 446%.

However, at various points throughout the decade, the trust's performance was less starry. In 1996-97 it was ranked 180th in its sector. The previous year it yielded only 8% growth and took 198th position.

The Johnson Fry Slater Growth unit trust ranks fourth in the sector over 10 years, producing total returns of 301%. Not bad for investors who wisely stayed put. But things were not so rosy in 1993-94 when the fund dropped by 2% and was ranked 174th.

The CIS UK Growth unit trust is in sixth place over 10 years and has earned its long-term investors 294% since launch. But anyone who left last year when it experienced a sudden slump may be kicking themselves. It has since recovered.

Meanwhile, the bottom-ranking funds show the perils of choosing the wrong product.

The worst performer is MGM Special Situations Growth unit trust. Anyone sitting it out since launch will have seen their investment grow by just 6.2%. And they will have endured some spec-tacularly bad years, such as 1989-90 when the fund plummeted by 43.9% and 1990-91 when it fell 27%.

Second from bottom in 150th place is the Equitable Special Situations unit trust, which grew only 10.9% over a decade.

With results as diverse as these, the chances of picking a winner from 1,650 authorised unit trusts and Oeics (openended investment companies) seem random.

Past performance cannot be relied on as a guide to the future, but it does identify the successes and failures of previous years.

For example, Callum Girvan, head of investment at St James's Place, attributes the UK and General Progress unit trust's success to its inclusion of top shares such as Glaxo Wellcome and SmithKline Beecham, as well as an ability to predict market trends.

At the other end of the scale, Nigel Webb, Equitable's senior manager, says the Special Situations trust mistakenly invested in too many small technology stocks without a balance of weightier blue-chips.

Experts say it makes sense, therefore, to look for a fund that includes a spread of blue-chips.

Consistency is another important feature. The highly successful CIS UK Growth trust was managed by one man for nine years. Funds run by a succession of managers, each with different strategies, often suffer as a result.

Ann McMeehan, communications director at the Association of Unit Trusts and Investment Funds, says that as well as committing themselves to making an investment, investors should commit themselves to investing for the long-term.

McMeehan says: 'It is impossible to predict the perfect time to come in and out of the markets. But we do know that over time, if you stay invested in equities, then the chances of doing well are in your favour.'

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