Investment winners and losers 10 years after the crash

Date published: 14 September 2018

Kate Beioley

This week marked 10 years since the collapse of Lehman Brothers triggered a global financial meltdown and changed the landscape for investors. But which investments have performed strongest since the financial crisis?

Those who remained invested in the UK market could by now have doubled their money, and US equity investors have reaped the rewards of a boom in technology stocks. However, those in banking stocks like Royal Bank of Scotland are still nursing their wounds.

The collapse of Lehman — still the largest bankruptcy in US history — tore through UK markets. In four days of trading after its collapse on September 15 2008, the FTSE All Share shed about 10 per cent of its value and by Christmas had lost almost a quarter of its value.

Six months later, things were even worse: £10,000 invested before Lehman’s collapse in the UK market had shrunk to £6,581, as expressed in the FTSE All-Share index.

What followed was a concerted effort by central banks in the US and UK to repair the economy, cutting interest rates and pumping money into the system through the policy of quantitative easing.

As a result, investors who held firm in the UK market would now have doubled their money. According to data from FE, investors with £10,000 invested in the FTSE All Share on the eve of Lehman’s collapse would now be sitting on an investment pot worth more than £21,000, with dividends reinvested. And those buying at the nadir of the market would have earned far more.

Investors buying mid and small-cap UK stocks have earned more over the long term than those holding the UK’s largest companies — though they have suffered a more volatile ride.

Russ Mould, investment director at broker AJ Bell, said: “Big caps do best, or least badly, on the way down, while small and mid-caps do best on the way back up.” This is because investors perceive smaller cap companies to carry higher risks.

An investor with £10,000 into the FTSE 250 index on the eve of Lehman’s collapse would now have a portfolio worth almost £30,000, according to FE data, while an investor holding £10,000 in the FTSE 100 index would now be sitting on a portfolio worth just under £20,000.

The big success story since the crisis has been US equities. These were the best performing of any asset class between September 16 2008 and 2018, according to Fidelity, beating all other categories of equity and bond.

If an individual had £10,000 invested in the S&P 500 index at the end of August 2008, it would now have grown to more than £37,000, according to FE data.

Low interest rates in the US and accommodative monetary policy had a part to play in the success of US companies, but technology has been a key driver of returns.

Tom Stevenson, investment director at Fidelity, said: “In the last quarter alone, we’ve seen two of its tech stalwarts, Apple and Amazon, reach a market capitalisation of $1tn, and nowhere else in the world comes close to rivalling the technology dominance of Silicon Valley.”

The era of easy money, fuelling a record bull run in the US, also sent investors into higher-yielding, high-risk assets such as high-yield bonds and emerging market debt, both among the best-performing assets in the past decade.

In the UK, information technology stocks, consumer discretionary and consumer staple stocks delivered the best returns of any sector between the end of September 2008 and 2018, according to research by Fidelity.

Investors who bought IT stocks enjoyed a 320.8 per cent total return, according to the MSCI UK IT benchmark, as fever for the so-called FAANGs (Facebook, Apple, Amazon, Netflix and Google) spread to the UK.

“We may not have the giant technology stocks that have led the US market higher, but the IT revolution has still been a key driver of the stock market over here,” said Mr Stevenson.

However, the UK banking market still bears the scars of the crisis. At the end of August, shares in RBS remained almost 90 per cent below their price on the eve of Lehman’s collapse, according to Hargreaves Lansdown. The FTSE 350 banking index also remains down by more than 17 per cent since the eve of Lehman’s collapse.

And investors have not enjoyed a straightforward investment journey even in the best performing investments. In individual years, the top stocks and sectors have fluctuated dramatically. No single asset class has been the best performer for two successive years since 2008.

 

Meanwhile, the factors that stimulated the long bull run in equities over the past decade could now be coming to a close.

Jason Hollands, managing director at Tilney Group, said the financial crisis had heralded “an era of unconventional monetary policy by central banks”, with de facto money printing on a vast scale and a decade of ultra-low interest rates.

“Investors who held their nerve in the darkest days of the financial crisis have been handsomely rewarded since, and the fearless ones who actually invested have made a killing,” he said.

However, he warned that steadily rising interest rates and the withdrawal of financial stimulus would create issues for investors to deal with in future.

Source: FT.com

Link To FT.com: https://www.ft.com/content/b485a31a-b72f-11e8-b3ef-799c8613f4a1

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