Record low interest rates: cash savers left with £40, but top fund returns £5,000

Record low interest rates have negatively hit cash savers
 

Since the Bank of England cut interest rates to 0.5 per cent in March 2009, savers have endured the worst returns on cash ever experienced.

To make matters worse, for some of this period, particularly in 2012, inflation was up at around the 4 per cent mark.

Number-crunching by Chelsea Financial Services has laid bare how savers have been high and dry by 100 months of record low interest rates. The broker calculates that £1,000 left languishing in a cash account since March 2009 would now be worth just £1,039.80 today. In other words, it would produce a return of just £40.

In stark contrast, those who gambled on the stock market recovering saw their bets pay off handsomely, with the FTSE 100 index recovering from its low of 3,500 to trade at above 7,500 today.

Those who did not have the foresight or sheer luck to buy when the market reached its trough, and instead waited a couple of years, would still have made good money. For example, those who bought a FTSE 100 tracker fund five years ago would have gained around 43 per cent.

In terms of actively managed investment funds, investors who backed one of the 10 top-performing UK equity funds since March 2009 would have pocketed returns of 400 per cent plus.

The table below highlights the top performers, with fund manager Mark Slater top of the list. In Money Observer’s May issue Slater, manager of MFM Slater Growth – a Money Observer Rated Fund – ran through his latest trades, including a new holding in the form of Lloyds Banking Group.

Since March 2009 a £1,000 investment into MFM Slater Growth would today be worth £6,529.50, up to the end of May. 

The top performers featuring in the table have mainly backed smaller companies, as opposed to the more familiar blue-chip names such as Vodafone and Royal Dutch Shell in the FTSE 100 index. Since the financial crisis, the smaller-cap end of the UK market has flourished more than any other, in part because it was the hardest hit by the crisis.

Top ten funds since March 2009

PositionFund% performanceMonetary value (off £1,000 investment in March 2009)
1MFM Slater Growth552.95£6,529.50
2SVM UK Opportunities472.78£5,727.76
3SLI UK Equity Unconstrained468.35£5,683.51
4TM Cavendish Opportunities462.91£5,629.14
5Unicorn UK Income447.38£5,473.75
6Old Mutual UK Equity426.18£5,261.79
7MI Chelverton UK Equity Income419.79£5,197.87
8Old Mutual UK Mid Cap419.75£5,197.46
9Neptune UK Mid Cap409.28£5,029.83
10R&M UK Equity Long Term Recovery408.49£5,084.91

But, even so, investors in the average UK all companies fund, which may invest across the entire UK main market, would have seem their £1,000 investment grow to £3,081.72.

Meanwhile, those who class themselves as more risk-averse than the average investor could have seen their money almost double through fixed interest holdings, with the average strategic bond fund turning £1,000 into £1,933.10.

Juliet Schooling Latter, research director at Chelsea Financial Services, acknowledges that the UK equity market has enjoyed a strong run.

While it is impossible to predict whether the FTSE 100’s rich vein of form will continue, Schooling Latter thinks it is more prudent at this juncture to be more cautious, rather than getting carried away.

She says: ‘I would be more cautious about investing a lot of money into the UK equity market today. It is on the expensive side and, while it could very well continue to rise in the short term, a correction of some sort would not surprise me either.

‘In these conditions I would favour funds investing in UK equities that aim to make money when markets rise, but also when they fall.’

Her three picks are Henderson UK Absolute Return, Smith & Williamson Enterprise and Threadneedle UK Extended Alpha. The first two are long/short targeted absolute return funds, whilst the third is a more core UK equity fund that has the ability to short (bet against) stocks.

Three safe haven funds and trusts for an uncertain world

In terms of other options for investors on the lookout for safe haven funds, two that are regularly tipped by both financial advisers and fund analysts are Newton Real Return, an absolute return fund that has proven to be a steady performer over the years, and Personal Assets, an investment trust that is managed very conservatively.

Another fund that could be regarded as a ready-made safe haven is the Schroder MM Diversity fund. Fund manager Marcus Brookes is currently in cautious mode, with 25 per cent held in cash. Brookes is bearish on the outlook for bond markets and expects the 35-year bull market to end.
 


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