Average fund in poor sector needs to return 66% next year to restore investors' capital
The average smaller companies fund needs to return more than 66% over the next 12 months to make up for the past year's losses and bring investor's capital back to its original value.
European Smaller Companies has been the second worst performing Autif classification, after Technology and Telecoms, over the past 12 months.
Despite a rally of 8.88% over the week to 4 September, European Smaller Companies funds on average need to return 89.86% over one year to restore investors' capital to its original value. According to Standard & Poor's calculations, based on a bid to bid basis, even over three years, an investor would need to achieve an annualised growth rate of 23.83% just to recover the initial investment.
This is not completely unfeasible, based on historic performance from this sector.
At the height of the technology boom, European Smaller Companies funds rose 93.04% on average over the discrete one year period between 28 September 1999 and 28 September 2000, while Aegon European Smaller Companies, the top performer in the sector, was up 204.79%, bid to bid, over that period.
Last week, US Smaller Companies funds displaced UK Smaller Companies portfolios as the top-performing smaller companies sector over the 12 months to 5 October but they still need to return some 54.68% over 12 months to restore capital. This equates to annualised growth rate of 15.65% over three years.
UK Smaller Companies had been the top-performing small-cap sector until it fell 15.48% over the month to 5 October, the worst-performing Autif sector in that period.
UK Smaller Companies funds on average now need to return 55.5% over one year to rebuild investors' original investment. Over three years, this would require an annualised growth rate of 15.85%.
The worst-performing small-cap fund, M&G Innovator, would need to return 350.25% to return investors' capital over one year. Down 77.79% over the 12 months to 4 October, over three years it would need to return annualised growth of between 35% and 116.75% to restore capital.
Even over five years, the fund would need to post annualised growth of between 18.42% and 70% to bring investors capital back to its original level.
Mark Hargreaves, head of European equities at Framlington, said the main reason UK small caps outperformed their US and European counterparts was due to the UK's overall economy outperforming.
What made financial headlines over the weekend?
290,000 already affected
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension