Billions lost since 'axis of evil'
speech
Patrick Collinson and Rupert Jones
Thursday March 13, 2003
The Guardian
Millions of small investors have seen their pensions,
endowments and shareholdings caught in the crossfire of
President George Bush's war against terrorism.
Since January 29 last year when President Bush put the "axis
of evil" in his sights, 40% has been wiped off the value of the
average British investment trust and 30% off the average unit
trust.
Someone who put £1,000 into the typical unit trust on January
29 last year has seen it fall in value to £710.30, according to
Standard & Poor's, and that is before dealing charges are
taken.
The payout on the typical endowment is down by more than a
fifth over the same period, with more than four out of five of
Britain's 10m policies now "off-track" and unlikely to generate
enough cash to repay a mortgage.
At the time of President Bush's speech, a £50 per month
endowment buyer could have expected a payout of £94,738 if
premiums were paid for 25 years. Now the equivalent payout
is just £72,323, according to figures from insurer Scottish Life.
Among the unluckiest investors are those caught up in the
internet hype of the late 1990s. More than £3bn in small
investors' cash poured into technology funds in 1999-2000 at
the peak of the dotcom boom. But in the past three years the
average technology fund has fallen more than 85%, and in a
survey this week investment managers said it could take 20
years for investors to recover their losses.
Pensioners have suffered more than most. Many invested in
what were thought to be safe income bonds from blue-chip
companies such as Scottish Widows, Abbey National and
Scottish Life. When they were launched, "back- testing" of
markets showed they could not go wrong. But underlying
these bonds are complex derivatives which result in total
capital losses in extraordinary market conditions. But what
was held to be unthinkable has occured, and many are now
on the verge of collapse. This month a three-year Canada Life
income bond matured but its holders were told their capital
had been completely wiped out. Around £1bn is tied up in
tranches of a Scottish Widows bond where holders, mostly
elderly, are staring at massive losses.
Other walking wounded which may now collapse altogether
include the remaining split-capital investment trusts. The
trusts in this £10bn sector have fallen like dominoes, and the
few survivors now look more precarious than ever.
But it is not all gloom. Investors who opted for bond funds
rather than equities have enjoyed inflation-beating gains. Since
January 29 last year, the average bond fund has increased in
value by 4.5%, according to Standard & Poor's figures.
Gold, the traditional haven in times of international crisis, has
jumped from $278 to $350 since January 29, although the
gains have been less for British holders, because the dollar
has fallen in value.
As for the super-rich, many have sidestepped plummeting
markets. Hedge funds, open to investors with £100,000 cash
to spare, have largely avoided the stock market rout.
According to CSFB, the average hedge fund in 2002 saw a
loss of just 1.6%, with many using short-selling techniques to
make large profits as the market has fallen.
money.guardian.co.uk |
