Lessons from recessions

Investing in the average investment company at the beginning of the last three UK recessions would have generated positive returns within three years, according to data from the Association of Investment Companies (AIC).

The early 1990s recession lasted five quarters, and it took over two years for the average investment company to recover its losses. In the recession of 2008 to 2009, it took two and half years; and in the short-lived Covid recession of 2020, investment companies had recovered their losses within 11 months.

Source: AIC/Morningstar. Time for average investment company to recover losses is the amount of time until the average investment company permanently recovered the losses it suffered since the beginning of the recession.
 

In the early 1990s recession and the global financial crisis, the average investment company delivered a positive return in three years from the beginning of each recession. This was also clearly the case over five and ten years since the start of the recession.

The Covid recession was unusual in that the average investment company was showing a strongly positive return (of 14%) just one year from the outset of the recession. However, the more recent market turmoil has erased most of these gains.

Return on £1,000 invested at start of recession

Source: AIC/Morningstar. * Covid recession only (as three years have not elapsed since the beginning of this recession).

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “Clearly, we don’t know at the time when a recession begins, as it is only confirmed in hindsight. However, our data shows that investing in recessions isn’t necessarily something to be feared as long as you have time on your side.

“Since the first investment company was launched in 1868, investment companies have weathered a total of 12 UK economic downturns, including the Great Depression of the 1930s and the recessions of the mid-1970s which were characterised by stagflation and high commodity prices. Every recession is different, but investment companies have a permanent capital structure that enables them to invest for the long term and withstand whatever the market throws at them.”

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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 vision is for closed-ended investment companies to be considered by every investor. The AIC has 357 members and the industry has total assets of approximately £269 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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