Six ways to invest in an inflationary environment
UK inflation rose to 9% in April, its highest level in 40 years and almost double the rate the Bank...
Investors could do well to take a few lessons from boxer Tyson Fury in the next few weeks, as they look to ride out the barrage of shots coming from global stock markets, courtesy of the Coronavirus and oil price wars.
As I’m sure many boxing fans will tell you, Fury recaptured a version of the heavyweight championship of the World by beating Deontay Wilder, arguably the most fearsome punching heavyweight of all time, in one of the most stunning all-time performances by a Brit in a boxing ring.
How did he do it? By being proactive and adaptable. Typically known as more of a defensive boxer rather than a knockout artist, Fury made fools of the experts by going from being the hunted to the hunter.
That same adaptability could serve investors well at the moment, following the sharp falls in global stock markets.
The sharp declines in the value of investments could tempt people to head for the safety of cash for the time being. However, losses are not losses until you crystallise them, and possibly the worst thing anyone could do now, would be to redeem investments.
A recent article from Schroders acknowledged that, while markets have been quick to react to the severity of the Coronavirus – in terms of their falls – history shows that stock markets also have a tendency to bounce back quickly.
Over the past three decades, the strongest five-year rebound for the UK’s stock market (as measured by the FTSE All-Share) was a return of 134%*. That was after the ten worst days of the banking crisis turbulence on 2 March 2009.
I’m not suggesting for one second that now is the time for investors go piling into the market, with no regard for the consequences – far from it. Tyson Fury would be the first to admit that his approach was a calculated one and that, if he was not careful, he would have ended up flat on his back staring at the lights.
But there are plenty of great active fund managers out there who will be taking calculated risks and topping up on investments at much lower prices and, possibly, sowing the seed for the next big equity rally. Buying in the midst of panics can be very profitable, it’s just emotionally hard to do!
Everything around us is insured, regardless of economic boom or bust, which gives this fund some very nice defensive characteristics. Managed by Nick Martin, Polar Capital Global Insurance has proven its ability to perform in all market conditions. Investing all around the world, the 30-35 stock portfolio does usually have a bias towards US firms, as the team believes they are typically better stewards of capital. The fund is predominantly invested in large companies but does have some mid and small-cap exposure.
These are the sorts of markets where contrarian investors often come to the fore. Finding undervalued companies that are yet to deliver on their potential is the aim of the ES R&M UK Recovery fund, with manager Hugh Sergeant using his three decades of investing experience to identify companies where he believes management have the capability to turn things around. Hugh looks to add to his holdings at almost fire-sale prices in volatile times – such as those we are currently experiencing – and will be patient with their turnaround.
Having witnessed the start of an oil price war this week, investors are rightly nervous that pressure on oil company profit margins could result in pressure on dividend payments in the coming months if neither Russia nor Saudi Arabia back down. So some income investors may be looking to diversify their income portfolios more. BNY Mellon Global Income manager, Nick Clay, has created a disciplined stock-picking process that has proven itself over time, providing good total returns and a decent level of income from stocks across the globe.
Believe it or not, after an extremely rocky start to the year, the Chinese stock market, as measured by the MSCI China index, is down just 5.12%** – outperforming the MSCI World index, which is down 14.22%** and the FTSE All Share, which is down 19.86%**. The first to succumb to the Coronavirus, the country could be the first to recover. Invesco China Equity is down just 0.76%**. The managers aim to identify companies with a competitive advantage over their peers, and sustainable leadership in their industry and specifically target companies they feel are undervalued by about 25-30%.
*Source: Schroders Insights: How stock markets perform after heavy falls
**Source: FE Analytics, total returns in sterling, 1 January 2020 to 10 March 2020