In the early 1970's, unit trust groups typically only had a UK growth fund and a UK income fund to o...
In the early 1970's, unit trust groups typically only had a UK growth fund and a UK income fund to offer and only a few had an international fund. But it must be remembered the FT-30 Index (the UK benchmark of the time) between May 1972 and December 1974 fell 75.5%, so there was little encouragement for fund managers to launch new funds.
The other big problem holding back UK investors looking overseas was the penalty imposed by the then dollar premium.
This was a British government tax that in effect imposed a tax of around 20% for switching from sterling into dollars. It was a penalty you suffered when you repatriated funds back into sterling, so 20% of the funds, including the profit suffered a 20% tax.
Some groups managed to set up a mechanism known as a 'back-to-back loan', which to some extent mitigated this effect but in so doing it also put the costs up because the loan suffered interest payments which had to come out of the fund.
This state of affairs was maintained until Margaret Thatcher gained power in 1979. One of her very first actions, or that of Geoffrey Howe, her first Chancellor, was to remove the dollar premium.
This was the single act which put the unit trust industry on a higher footing and ultimately enabled the plethora of unit trust funds now available, which must number nearly 2,000.
With the removal of the dollar premium the first investment theme wasn't really a theme, it was just trying to offer a wider range of opportunities for UK investors wishing to invest overseas. The first funds to gain broader acceptance were North American rapidly followed by Japanese.
In the case of Japan, when the yen was rising against sterling and the market was going up, there were great opportunities for much of the 1970s, and most of the 1980s, to make money in Japan. The themes and choices that emerged centred on investing in funds specialising in blue chips, or Japanese smaller companies, or other special situation funds.
Broadly speaking, international funds which, on the face of it, should have given very good performances if the fund managers knew what they were doing, were often disappointing.
The reasons were the fund manager typically felt obliged to give a geographical spread to the fund that would typically mirror either the Morgan Stanley World Index or some other benchmark. In most years, as the global economy does not move as one, part of the world would either be in recession or having severe problems curtailing growth on the stock market, while other parts would be doing well.
As a result, the overall annual return on many of these funds had a diluted and disappointing result. Today it is difficult to make comparisons as the sector includes such a wide variation of investment criteria.
The next big theme to hit town was investing in the Far East, apart from Japan. Investments into Singapore, Malaysia, Thailand, Taiwan or South Korea had not been on people's horizons until then.
Suddenly there was an explosion of new Far Eastern funds giving the choice of investing in a Far East fund which included Japan or excluded investments in Japan.
Many of these funds enjoyed tremendous success for many years as these countries averaged annual growth rates in excess of 11%. The UK and the US markets were suffering for much of the 1970s and 1980s from rising inflation and subsequent rises in interest rates and many short and frustrating economic cycles. Whereas the Far East was the one place where investors could enjoy reliable growth for many years.
Following the tremendous success of Britain's early privatisations, many major western countries started to follow the idea as a means of freeing up their economies, deregulating and creating cash for their governments in the process.
This was followed by a plethora of emerging markets, and this process is still ongoing in many parts of the world. On the back of this, Mercury Asset Managers was the first to launch a privatisation fund prompted by the large privatisations planned, particularly in France and Germany.
However, early results were disappointing for the principal reason much of Britain's privatisation success came as a consequence of the new managers of these companies being able to do away with literally tens of thousands of surplus employees, dramatically boosting their profits.
As it was, few had stopped to realise that when the money poured into these funds in Europe sacking people was a far more complicated and costly process.
Wall comes down
In 1989 we witnessed the unexpected event, one of the most significant of the last century, namely the demise of the Berlin Wall and Gorbachev's 'perestroika'. It opened up the possibility of the unification of East and West Germany and the removal of the communist yoke from Russia, Poland, Hungary, and Czechoslovakia.
During the 1980s Latin America was starting to realise hyperinflation didn't have to be a way of life and Chile had already introduced compulsory pension schemes.
Suddenly there was another new theme, emerging markets. This theme is still with us, but investors have come to realise it is one of the most volatile investment themes yet manifested.
But it is the case that risk and reward are proportional. If your timing is right you can have great rewards, but if you bury your head in the sand and don't take the profits good timing generates, they can be rapidly lost.
The first big hit to blow the breath out of the lungs of the emerging market bulls was the announcement in December 1994 that Mexico had devalued. Some funds in the following few hours fell nearly 30%.
That seriously impacted on mental attitudes towards emerging markets and took nearly 18 months for confidence to return. One of the lessons learned from this was to follow the direction of the huge flows of capital in and out of these markets. When countries such as Argentina had only a few year