Association of Investment Companies (AIC) highlights the benefits of long-term investing

AS CORONAVIRUS ATTACKS MARKETS, INVESTMENT COMPANY ISA MILLIONAIRES SHOW THE POWER OF LONG-TERM INVESTING
- Six investment companies grow ISAs to £1m+
- ‘ISA millionaires’ are Scottish Mortgage, HgCapital, BlackRock Smaller Companies,
Biotech Growth, BlackRock Throgmorton and TR Property

Despite the recent market falls, new data from the Association of Investment Companies (AIC) highlights the benefits of long-term investing. Six investment companies would have made investors millionaires if they had invested the annual ISA allowance in the same company each year to the end of February 2020.

Investing the full ISA allowance each year from 1999 to 2019, a total of £226,560, into any of Scottish Mortgage, HgCapital, BlackRock Smaller Companies, Biotech Growth, BlackRock Throgmorton or TR Property and reinvesting dividends would have produced a tax-free pot worth more than £1 million.

Scottish Mortgage tops the list with a return of £1,109,754, followed by HgCapital with a return of £1,095,066 and BlackRock Smaller Companies with £1,080,199.

A further seven investment companies would have returned over £900,000, more than trebling investors’ total investment.

Of the 20 investment companies with the highest returns, seven are in the UK Smaller Companies sector.

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “The recent market volatility is understandably concerning for investors. Whilst none of us can be sure of the markets’ next move, it demonstrates the importance of taking a long-term view of your investments. The fact that six investment companies have generated more than a million pounds for those who invested the full ISA limit is a testament to the power of the investment company structure. Seven of the top-performing investment companies are in the UK Smaller Companies sector, investing in smaller, less liquid companies where the structural benefits of the closed-ended structure really come into their own.

“While it’s interesting to see which investment companies would have made investors ISA millionaires, it’s really important to have a balanced portfolio. If investors need guidance on their ISA choices they should speak to a financial adviser.”

Comments from the top three performers
Catharine Flood, Corporate Strategy Director for Scottish Mortgage, said: “In an ever more impatient world, we remain resolutely long term. Scottish Mortgage aims to buy and hold great growth businesses that have the potential to be amongst the few outstanding companies which create the lion’s share of long-term equity market returns, through the power of compounding. Crucial to this is a willingness to endure through the inevitable volatility in stock markets along the way.

“We are delighted to have been able to deliver long-term returns for our shareholders over the last two decades as a result of this patient and diligent approach and within our low-cost structure, which has ensured that they have kept more of the returns generated using their capital. Over that time, there has been a profound change in the way people interact, shop for all kinds of goods and consume media. In China there has also been a revolution in the way many access financial services.

“We believe in the coming years returns are likely to continue to go to those businesses best able to embrace progress and to invest in their own future. The managers anticipate that still more of the global population will access an increasing range of goods and services through mobile digital platforms. There are even greater opportunities from better business models to drive efficiencies in transportation, manufacturing, and even the ways in which we produce and distribute food. Scottish Mortgage remains best suited for those who share our patient approach.”

Matthew Brockman, Managing Partner at Hg, said: “Hg is proud of the performance that HgCapital Trust has seen over more than 25 years as its manager. We are committed to building businesses that change the way we all do business, through deep sector specialisation and dedicated operational support. Hg has a clear investment approach, targeting software and services companies operating in Hg’s eight core end markets, growing faster than the broader economy.

“In 2019, we have reinforced Hg’s focus and scale. Focus on the software and service universe and scale to ensure our reach, expertise and network goes broader and deeper than ever before. Today Hg looks less like a traditional private equity firm and more like a fully collaborative software and services organisation. This is our vision for the future of private equity. We believe our investment strategy works and, with a portfolio of more than 30 companies seeing strong growth, will continue to create long-term value for shareholders in HgCapital Trust.”

Roland Arnold, Portfolio Manager of BlackRock Smaller Companies, said: “Our focus is always on companies and their fundamentals, and we believe this has been key to the success of the trust over the years. We try to identify companies with good long-term growth prospects over the next five to ten years – those companies with earnings momentum resulting from their market position or pricing power. Longer term, the earnings growth of these companies will compensate investors for any shorter-term headwinds. Therefore, we focus far more on the long-term prospects for the companies in our portfolio rather than short-term macro factors.

“We look for five key criteria in an investment – a strong balance sheet, cash flow generation, a strong management team, a decent track record of business growth and a leading market position. That might sound very simplistic – the reverse would be a financially weak business run by rogues – but it’s amazing how much a company can underperform if you stray from these five criteria. We like low capital employed, high return on capital businesses because they can fund their own growth and grow their dividend stream.”

Top 20 investment companies based on annual ISA limit lump sum investments

Rank	Investment company	AIC sector	% Share price total return 06/04/1999 to 29/02/2020	Total at  29/02/2020
1	Scottish Mortgage	Global	945	£1,109,754
2	HgCapital	Private Equity	1,849	£1,095,066
3	BlackRock Smaller Companies	UK Smaller Companies	1,146	£1,080,199
4	Biotech Growth	Biotechnology & Healthcare	1,278	£1,060,729
5	BlackRock Throgmorton	UK Smaller Companies	1,135	£1,033,246
6	TR Property	Property Securities	1,760	£1,003,919
7	Worldwide Healthcare	Biotechnology & Healthcare	1,773	£996,198
8	Allianz Technology	Technology & Media	900	£993,631
9	Polar Capital Technology	Technology & Media	821	£991,333
10	Standard Life UK Smaller Companies	UK Smaller Companies	603	£951,379
11	Aberdeen Standard Asia Focus	Asia Pacific Smaller Companies	2,502	£941,140
12	Invesco Perpetual UK Smaller Companies	UK Smaller Companies	1,188	£937,097
13	Rights & Issues	UK Smaller Companies	1,381	£918,983
14	Scottish Oriental Smaller Companies	Asia Pacific Smaller Companies	2,489	£893,619
15	JPMorgan Russian Securities	Country Specialist: Europe - ex UK	2,886	£882,778
16	Aberdeen New Thai	Country Specialist: Asia Pacific - ex Japan	1,350	£867,782
17	JPMorgan Smaller Companies	UK Smaller Companies	1,049	£863,305
18	Acorn Income Fund	UK Equity & Bond Income	1,041	£818,996
19	Henderson Smaller Companies	UK Smaller Companies	379	£804,694
20	JPMorgan European Smaller Companies	European Smaller Companies	1,279	£775,195

 

Source: AIC/Morningstar. Performance is share price total return to 29 February 2020 if the maximum ISA limit for each year had been invested on 6 April in each company annually from 1999 to 2019.

-ENDS-

For further information, please contact:
          

Annabel Brodie-Smith	Nick Britton	Elmley de la Cour	William Sanderson
Communications Director	Head of Intermediary Communications	Communications Manager	Communications Executive
AIC	AIC	AIC	AIC
020 7282 5580	020 7282 5559	020 7282 5583	020 7282 5584
07798 624449	07525 917 281	07377 373915

 

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Notes to editors

1. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment.  Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 363 members and the industry has total assets of approximately £201 billion.
2. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance.  The value of investment company shares, and the income from them, can fall as well as rise.  You may not get back the full amount invested and, in some cases, nothing at all.
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