The Scottish Portfolio

In July 1698 a flotilla of five ships set sail from Leith, Scotland for Panama. Scotland had seen the colonisation successes of other European nations and wanted to get in on the action. So £400,000 was raised (about a fifth of all the wealth in Scotland at the time) for the Company of Scotland for Trading to Africa, and off they set westwards to the New World (the “Africa” part having been forgotten – investors didn’t seem to mind, or know). The venture became known as the Darien Scheme and the new colony in Panama was to be called Caledonia.

It did not turn out well. Lack of food and water, disease, drunkenness and, finally, a Spanish siege led to the abandonment of the colony in 1700. The effect on Scotland was traumatic. Many of the nobles and landowners were financially ruined and the morale such that many no longer believed Scotland could be an independent major power. The failure of the Darien Scheme is thought to have been a major factor in driving Scotland to signing the 1707 Act of Union with England.

In September, 207 years later, Scotland will be voting on whether to regain independence (coincidentally, again in the wake of a financial disaster – this time the recent credit crunch).

What would an independent Scotland look like to investors?

One way of analysing this is to look at the current Scottish companies listed on the LSE. The following chart plots the performance of a “Scottish” portfolio over the last ten years. The equally-weighted portfolio consists of the seven companies: Aberdeen Asset Management, Aggreko, Lloyds Banking Group, Royal Bank of Scotland Group (The), Standard Life, Weir Group, Wood Group (John); they were selected as having their company address in Scotland and being in the FTSE 100 Index.

Scottish PortfolioNot too impressive – over the ten years the Scottish portfolio would have massively under-performed the FTSE 100 Index.


Perhaps we should look at the portfolio without the banks; obviously the presence of RBS and Lloyds greatly affected the performance. So, the following chart is as above but this time without the bothersome banks.

Scottish Portfolio excl banksQuite a different story. And all five companies in the portfolio contributed to the strong out-performance of the FTSE 100 Index.

So, does this reflect the true strength of the real Scottish economy?

Perhaps. But we do seem to remember that before the credit crunch supporters of Scottish independence were claiming that the Scottish financial industry – led by the banks – would be one of the economic pillars of a newly independent Scotland.

Extract from The UK Stock Market Almanac 2014

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