Just how bad were the noughties for UK investors?
'Good riddance to the Noughties!' went the headlines. 'The decade equity investors would like to forget,' 'one of the worst-ever decades for British investors' … and a hundred-and-one others in the same vein.
You could be forgiven for thinking that the 'noughties' sobriquet was coined to describe the value of investors' portfolios at the end of 2009; while the 'tenties' obviously refers to the only housing ruined investors will be able to afford in the new decade!
There is no disputing the plain facts. The FTSE 100 peaked at 6,930 at the end of 1999 and stood at a mere 5,413 at the end of 2009 -- a fall of 1,517 points or 22%.
Beastly.
Abysmal.
Dire.
(And acrostic, for the poets amongst you.)
But it's not the whole story. There are three important sub-plots that were lost in the tale of woe.
1. It isn't all about the FTSE 100
The non-financial media routinely focus on the FTSE 100 to the exclusion of all else. Of course the leading index of the UK's biggest companies is important, but it's not the entire investment universe. The FTSE 250 index and the FTSE SmallCap index together offer a further 500+ companies. The FTSE Fledgling and AIM markets add another 1,500 or so -- but we'll concentrate on the more mainstream segments of the market.
Here's how they did over the decade:
| Index | Gain/loss |
|---|
| FTSE 100 | -22% |
| FTSE 250 | +44% |
| FTSE Small Cap | -10% |
| FTSE All-Share | -15% |
The All-Share (which is dominated by the FTSE 100) and SmallCap indices both posted negative returns, but the FTSE 250 stands out as a beacon of light in the darkness. Naturally, most people who invested in the stock market via index trackers back in 1999 would have opted for a popular FTSE 100 or All-Share tracker.
But there was at least one FTSE 250 product on the market, the potential of which was highlighted by our own Maynard Paton in an article in 2004. Investors who appreciated that diversification by market capitalisation is generally better than putting all your eggs in a one-size company basket won't have suffered the full force of the FTSE 100's miserable performance.
2. Don't forget the dividends
The numbers that dominated the end-of-decade headlines were those of the basic FTSE 100, which measures capital value only. Dividends, of course, are a significant component of equity returns -- a fact nicely illustrated by looking at the performance of the total-return versions of the indices over the decade:
| Total return index | Gain/loss |
|---|
| FTSE 100 | +9% |
| FTSE 250 | +91% |
| FTSE Small Cap | +16% |
| FTSE All-Share | +18% |
When dividends are taken into account all four indices posted a positive return, although only the 91% gain of the FTSE 250 outstripped inflation. Nevertheless, the dividend effect considerably improves the picture.
3. The secret life of investors
Nobody told the headline writers that few, if indeed any, investors would have begun and ended their investing careers with a lump sum investment in the FTSE 100 on the last trading day of 1999! Most investors I know put money into the market as and when they are able. Many working people invest on a regular basis, whether it be monthly, quarterly or annually.
I've had a look at how an investor would have done in the noughties, paying a modest £250 quarterly into two index-tracking funds: HSBC FTSE 100 Index and HSBC FTSE 250 Index. I've used the accumulation version of each fund.
The calculations in the tables are based on data supplied by HSBC (LSE: HSBA), and numbers have been rounded to whole numbers for clarity of presentation.
HSBC FTSE 100 Index
| Year | Quarterly
buy prices
(p) | Average
buy price
(p) | Price at
year end
(p) | Investment
running
total (£) | Value at
year end
(£) |
|---|
| 2000 | 112, 108, 106, 106 | 108 | 117 | 1,000 | 1,083 |
| 2001 | 117, 106, 107, 92 | 106 | 99 | 2,000 | 1,850 |
| 2002 | 99, 101, 90, 73 | 91 | 76 | 3,000 | 2,256 |
| 2003 | 76, 71, 79, 82 | 77 | 89 | 4,000 | 3,798 |
| 2004 | 89, 88, 90, 93 | 90 | 97 | 5,000 | 5,217 |
| 2005 | 97, 101, 106, 114 | 105 | 116 | 6,000 | 7,343 |
| 2006 | 118, 125, 123, 126 | 123 | 131 | 7,000 | 9,357 |
| 2007 | 133, 135, 141, 140 | 137 | 139 | 8,000 | 10,943 |
| 2008 | 140, 126, 121, 110 | 124 | 99 | 9,000 | 8,592 |
| 2009 | 100, 88, 98, 117 | 101 | 125 | 10,000 | 12,086 |
HSBC FTSE 250 Index
| Year | Quarterly
buy prices
(p) | Average
buy price
(p) | Price at
year end
(p) | Investment
running
total (£) | Value at
year end
(£) |
|---|
| 2000 | 65, 66, 66, 67 | 66 | 64 | 1,000 | 970 |
| 2001 | 64, 60, 61, 50 | 59 | 58 | 2,000 | 1,861 |
| 2002 | 59, 61, 55, 43 | 55 | 43 | 3,000 | 2,162 |
| 2003 | 44, 40, 50, 56 | 48 | 59 | 4,000 | 4,195 |
| 2004 | 59, 64, 64, 65 | 63 | 71 | 5,000 | 6,175 |
| 2005 | 72, 74, 77, 83 | 77 | 91 | 6,000 | 9,095 |
| 2006 | 92, 103, 99, 105 | 100 | 117 | 7,000 | 12,864 |
| 2007 | 118, 123, 121, 117 | 120 | 113 | 8,000 | 13,366 |
| 2008 | 113, 108, 96, 87 | 101 | 70 | 9,000 | 8,973 |
| 2009 | 71, 71 82, 101 | 81 | 104 | 10,000 | 14,614 |
Considering the noughties decade was 'one of the worst-ever' for UK equity investors, the end-of-decade values of £12,086 for HSBC's FTSE 100 tracker and £14,614 for its FTSE 250 tracker surely aren't that bad.
According to Moneyfacts, £10,000 cash invested in the average easy-access, variable rate savings account at the start of the decade would have been worth £12,100 at the end -- almost identical to the return on HSBC's FTSE 100 tracker.
Sure, equity risk hasn't been rewarded, a better return on cash could have been had with a little effort; and, sure, some other asset classes, such as corporate bonds, outperformed both equities and cash over the period. But, our notional investor feeding £250 into the index funds each quarter might be inclined to muse, "Well, if this is the worst the equity markets can throw at me, I can live with it."
If you're an optimist like me, you'll be hoping that -- as has usually happened in the past -- a poor decade will be followed by a terrific one. No guarantees of course, we'll only know for sure when we look back with 2020 vision.
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