On 5th March 2009, the Bank of England moved interest rates to 'emergency levels' and began quantitative easing in the UK. In what was the sixth cut in six months, the Bank of England base rate had fallen from 5% to 0.5% - its lowest level since the central bank was founded in 1964.
100 months later and we find ourselves in an even lower interest rate environment.
Anyone who kept cash savings over the period could have missed out on significant stock market gains. £1,000 in a cash account paying the base rate would be worth just £1,039.80* today.
In contrast, anyone choosing to invest in the average UK equity fund or UK equity income fund would have seen their pot of money grow to £3,081.72* or £2,998.62* respectively.
Those choosing to take a smaller amount of risk in the average strategic bond fund would have an investment today worth £1,933.10*.
Those investors who put their money in MFM Slater Growth, the top performing UK equity fund over the same period, would have seen their pot of money grow by more than £5,500, giving them a total investment value today of £6,529.50. All of the top ten performing equity funds over the past 100 months have added at least £4,000 to an initial £1,000 investment.
The top ten performing UK equity funds** over the period 5th March 2009 to 31st May 2017 were as follows:
I don't think anybody believed that interest rates would stay so low for so long back in 2009, so many cash savers stayed put. Over the intervening years, more and more have taken the plunge into equity and bond markets in the search for better income.
“In hindsight, anyone investing instead of saving in 2009 was putting their money in at the bottom of the market, when the FTSE 100 was at around 3,500. Today it is at around 7,500.
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.
Three of my favourites in this respect 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 stocks if the manager believes it will add value.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet's views are her own and do not constitute financial advice.*Source: FE Analytics, 5th March 2009 to 31st May 2017, total returns for the IA UK All Companies, IA UK Equity Income and IA Sterling Strategic Bond sectors, as well as the Bank of England Base Rate. **Looking at funds in the IA UK All Companies and IA UK Equity Income sectors, total returns in sterling, sourced from FE Analytics.