ISA performance since 1999 provides reassurance for investors today


There can’t have been many worse times to invest than when the ISA was first launched in 1999, just before the dot com crash prompted a deep and prolonged bear market. Indeed, the FTSE 100 took fifteen years to regain the level it stood at just before the turn of the century. However, early ISA investors have experienced the healing power of time in the market, with £1,000 invested in the average global fund now being worth £3,875, or £2,435 after inflation is taken into account.

Some funds have done considerably better, notably those investing in smaller companies, and in the far east, with the best performing fund and trust both turning £1 invested in 1999 into over £30 today. Both of these sectors sit at the volatile end of proceedings, but the performance numbers suggest the risk has been worth taking for patient investors. Looking forward, the far east may not experience the same boon from globalisation that it enjoyed at the start of this century, but there is still a strong domestic consumption story playing out. These markets can be choppy, and susceptible to government policies as we saw in China last year, but they can’t be ignored, and should play a role in the portfolios of investors with an appetite for risk, and an eye on the long term.

The same goes for investing in smaller companies. It’s notable that in the three major equity sectors of Europe, the US and the UK, smaller companies funds have opened up a huge performance differential on their large cap cousins. Smaller companies can have a longer growth runway than the big blue chips, simply because they are often newer, potentially disruptive companies, rather than unwieldy incumbents. They do carry a greater risk of failure too, but as a whole, this segment of the market has eclipsed large caps over the long term, and returns have been particularly dazzling where the skills of talented active managers have been applied to sort the wheat from the chaff.

In sharp contrast to today, the UK All Companies sector was the most popular destination for fund investors in 1999. As the table below shows, this has been one of the worst performing sectors since ISAs were launched. The last twenty years have not been kind to the UK stock market. It was hit especially hard by the financial crisis because of its high exposure to banks, and more recently, Brexit and a low weighting to technology stocks have left it trailing in the wake of other equity regions, most notably the US. Nonetheless even an investment in this relatively poor performer has turned £1,000 into £2,855 or £1,794 after inflation is taken into account.

For today’s ISA investors, this provides some reassurance. No-one wants to invest on the eve of a market crash in an area that ultimately proves to be a laggard, but these figures show that even if you do, you can still harvest a decent real return in the long run. It’s true that inflation has been pretty well contained since the turn of the century, but by the same token, markets have had to overcome the considerable challenges of the dotcom crash, the global financial crisis, and the coronavirus pandemic.

What’s more, by using your ISA allowance regularly you will invest across a range of market levels. Sometimes, you might catch a market teetering on the brink, like in 1999 or 2007, but you will also invest before big stock rallies, like in 2003 and 2009. Big turning points in markets are only clear with the benefit of perfect hindsight, but by investing regularly, investors can make sure they pick up the smooth along with the rough. Over time, these fluctuations will even out, and total returns will therefore approach long term averages, rather than sitting at the extreme ends of the spectrum.

Read about our Stocks and shares ISA

IA fund sector performance since ISAs were launched

Since April 1999

IA sector £1,000 invested Annualised return
IA China/Greater China £14,525 12.4%
IA India/Indian Subcontinent £14,279 12.3%
IA Financials and Financial Innovation £9,987 10.6%
IA Healthcare £8,480 9.8%
IA European Smaller Companies £8,114 9.6%
IA Asia Pacific Excluding Japan £7,799 9.4%
IA North American Smaller Companies £7,108 8.9%
IA UK Smaller Companies £6,891 8.8%
IA Latin America £6,888 8.8%
IA Global Emerging Markets £6,115 8.2%
IA Asia Pacific Including Japan £5,696 7.9%
IA Global Emerging Market Bond - Hard Currency £5,682 7.9%
IA Global Emerging Market Bond - Blended £4,767 7.1%
IA USD High Yield Bond £4,720 7.0%
IA Technology and Technology Innovations £4,602 6.9%
IA Japanese Smaller Companies £4,575 6.9%
IA North America £4,408 6.7%
IA UK Index Linked Gilts £4,008 6.2%
IA Europe Including UK £3,937 6.2%
IA Global £3,875 6.1%
IA Europe Excluding UK £3,775 6.0%
IA £ High Yield £3,116 5.1%
IA UK Equity Income £3,104 5.1%
IA EUR Mixed Bond £3,090 5.0%
IA Global Equity Income £3,062 5.0%
IA Flexible Investment £3,050 5.0%
IA USD Mixed Bond £3,006 4.9%
IA Mixed Investment 40-85% Shares £2,912 4.8%
IA UK All Companies £2,855 4.7%
IA Global Mixed Bond £2,735 4.5%
IA £ Strategic Bond £2,639 4.3%
IA EUR High Yield Bond £2,637 4.3%
IA £ Corporate Bond £2,525 4.1%
IA Japan £2,515 4.1%
IA Mixed Investment 0-35% Shares £2,476 4.0%
IA Global Government Bond £2,461 4.0%
IA Mixed Investment 20-60% Shares £2,384 3.9%
IA UK Gilts £2,323 3.7%
CPI inflation N/A 2.1%
IA Short Term Money Market £1,514 1.8%
IA Standard Money Market £1,420 1.5%

Source: Morningstar total return to 7th March 2022, ONS

Best performing trusts and funds since ISAs began

Since April 1999

Trust AIC sector £1,000 invested Annualised return
Aberdeen Standard Asia Focus Asia Pacific Smaller Companies £31,966 16.3%
HgCapital Trust Private Equity £26,765 15.4%
Pacific Horizon Asia Pacific £25,491 15.2%
Scottish Oriental Smaller Cos Asia Pacific Smaller Companies £24,866 15.1%
BlackRock World Mining Trust Commodities & Natural Resources £18,979 13.7%
Rights & Issues Investment Trust UK Smaller Companies £18,529 13.6%
Worldwide Healthcare Biotechnology & Healthcare £17,674 13.3%
Aberdeen New Dawn Asia Pacific £16,093 12.9%
TR Property Property Securities £15,802 12.8%
Allianz Technology Trust Technology & Media £15,356 12.7%

Source: Morningstar total return to 7th March 2022

Since April 1999

Fund IA Sector £1,000 invested Annualised return
Marlborough Special Situations UK All Companies £32,564 16.4%
abrdn Indian Equity India/Indian Subcontinent £20,962 14.2%
ASI Emerging Markets Equity Global Emerging Markets £18,758 13.6%
Baillie Gifford Pacific Asia Pacific Excluding Japan £18,171 13.5%
Artemis UK Smaller Companies UK Smaller Companies £17,262 13.2%
SKAGEN Global  Global £16,602 13%
Schroder ISF Greater China  China/Greater China £16,540 13%
Barings Hong Kong China China/Greater China £16,264 12.9%
BlackRock UK Smaller Companies UK Smaller Companies £15,537 12.7%
Threadneedle European Smaller Cos European Smaller Companies £15,324 12.6%

Source: Morningstar total return to 7th March 2022

Remember that the value of investments can change, and you could lose money as well as make it. How you're taxed will depend on your circumstances, and tax rules can change. ISA and tax rules apply. Past performance is not a guide to future performance.

These articles are for information purposes only and are not a personal recommendation or advice.

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Written by:
Laith Khalaf

Laith Khalaf started his career in 2001, after studying philosophy at Cambridge University. He’s worked in a variety of roles across pensions and investments, covering both the DIY and the advised sides of the business. In 2007, he began to focus on research and analysis, and has since become a leading industry commentator, as well as a regular contributor to the financial pages of the national press. He’s a frequent guest on TV and radio, and for several years provided daily business bulletins on LBC.