This post is one of a series [1] looking at returns in the decade after the financial crisis.
The more you tilted towards the UK stock market over the past decade, the more you lagged a globally diversified [2] investor. Not one of our domestic UK funds matched the MSCI World’s 12% return [3].
Trustnet [4] provides the chart that tells our story1 [5]:
[6]
Digging deeper, smaller caps [7] outpaced the wider UK market, with iShares MSCI UK Small Cap ETF (cyan line C) on 11% annualised versus its mid cap FTSE 250 cousin (magenta line C) on 10.7%. The large cap dominated FTSE All-Share (orange line E) sloped in with 8.3%. As for the mega cap FTSE 100 fund (dark yellow line F), it brought in just 7.6% annualised.
The results are close between the top two of my selections because holdings in the UK Small Cap ETF [8] overlap significantly with the FTSE 250.
Smaller cap funds earned you at least 2.5% annualised more than the broad UK market over the period, which is significantly more than you’d expect from the small cap premium [9].
Risk factors can’t always be relied upon to deliver a higher return, of course. The value orientated options [10] disappointed UK focused investors over the past ten years – for instance the high dividend Vanguard UK Equity Income Index fund delivered 7.9% and the Invesco FTSE RAFI UK 100 ETF trailed the pack on 6.7%.
Returns made in Britain
Younger passive investors – or newcomers at any rate – may be bemused to see this quick review of the performance of UK stocks.
True, some model portfolios [11] include an overweight to British equities but this is becoming less fashionable. The trend nowadays is to get all your equity exposure via a single world tracker fund [12].
It’s worth reflecting though that even ten years ago this thinking – and suitable global tracking products – were far less widespread. A decade ago even The Investor found himself recommending UK-tracking funds as the easiest way for new investors to get started [13]. That wouldn’t be the case today.
Many pundits suggest UK shares are cheap [14], and that the pound is depressed. They suggest that if and when Brexit is resolved there will be a reversion to the mean.
Maybe, maybe not. Passive investors are best off ignoring such speculation, and sticking to their plan. There’ll surely be plenty of other ways to get your fix of Brexit [15] excitement in the months ahead.
Take it steady,
The Accumulator
We’ll continue to gaze back 10 years [1] to see how several other passive-friendly strategies have fared. Subscribe [16] to get all the posts.