When ‘Boring’ Beats Exciting For Investors

sleepy tired boring

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Did you know that investors who tracked the main index of the Chinese stock markets have not made a penny in 20 years?No, neither did I. Martin Gilbert, chief executive of Aberdeen Asset Management, tells me: “The plethora of attractive statistics associated with some economies does not always translate into stock market performance.

“Had you started early and invested 1,000 in the Morgan Stanley Countries Index (MSCI) China index in 1992 – when it started – by the end of last month you’d still have around 1,000.

“That was despite annualised economic growth of 9pc and Asian equities generally returning over 300pc during those two decades.”

Despite those daunting facts, independent statisticians at Trustnet report that Aberdeen Emerging Markets has delivered total returns of 75pc over the last five years and this 3.5bn fund is up more 21pc this year. That would tend to support the argument for active stock selection rather than passive index tracking, at least in relatively opaque markets.

However, decent returns have been obtained closer to home for those who did not forget the importance of dividends and diversification of assets to diminish risk. Andrew Ross, chief executive of Cazenove Capital Management points out that while the FTSE 100 index of Britain’s biggest shares fell by nearly 9pc during the last five years, once dividend income is taken into account the total return over the period is over 10pc.

Mr Ross added: “A balanced approach has served investors well during the difficult period we are living through. For example, a balanced portfolio such as the Cazenove Diversity fund has produced a total return of 22pc during the last five years, a period which included the down years of 2008 – when Lehmann went bust – and 2011, with its Eurozone turmoil, Arab Spring and economic worries, when the FTSE 100 fell by more than 500 points.”

So, exciting emerging markets have not always delivered better returns than ‘boring’ British shares. Despite the difficulties of the global credit crunch, a balanced approach to asset allocation can pay dividends closer to home. But I expect the anonymous cynics of cyberspace will attack me for stating these facts; they usually do. Merry Christmas!