Investing in the average investment trust at the beginning of the last three UK recessions would have generated positive returns within three years, according to data from the industry.
The Association of Investment Companies (AIC) calculated that a £1,000 investment invested at the start of the early 1990s recession and in April 2008 amid the global financial crisis would have seen your wealth shrink after the first year but in positive territory after three years, to £1,398 and £1,150 respectively.
A similar investment in listed investment companies in January 2020, when the Covid outbreak was only making a few headlines in China, would have seen the investment rise within 12 months but unusually give up some gains after two years and nine months, with the theoretical investment now standing at £1,048.
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.
The recessions of the early 1990s and the global financial crisis also delivered improving returns as further years passed.
“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," said Annabel Brodie-Smith, communications director at the AIC.
“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.”