Bargain hunters beware
THE stock market crash is piling even more pressure on investors who want to use this year’s annual £20,000 Isa allowance before April 5, but are understandably wary about investing in the current turmoil.
The FTSE 100 has shed a third of its value in two months as covid-19 looks set to trigger a global recession.
While some investors are taking advantage of falling share prices by going hunting for bargains, many who have seen their existing Isa holdings plunge will be reluctant to throw good money after bad.
AJ Bell personal finance expert Laura Suter said its customers are avoiding panic selling, with many hunting for bargains instead: “The iShares FTSE 100 exchange traded fund (ETF) tracker andVanguard FTSE 100 ETF are both popular, as is Scottish Mortgage Investment Trust, which is heavily invested in US technology stocks.”
Many investors, especially older ones, may prefer a lower risk approach. Suter said gold may also be an option to help diversify your portfolio, tipping the VanEck Vectors Gold Miners ETF, which tracks the price of gold: “The Personal Assets Trust offers a diversified portfolio that includes high quality equities such as Microsoft, Nestlé and Unilever, government bonds, cash and gold.
“It aims to avoid loss of capital and therefore could appeal to cautious investors.”
Darius McDermott, managing director of Chelsea Financial Services, said bond funds, which invest in government and corporate bonds, are lower risk than shares, and can help diversify your portfolio: “M&G Global Macro Bond is a great allround fund that is actually up 6 per cent this year. Jupiter Strategic Bond Fund is another option.”
He tips SVS Church House Tenax Absolute Return Strategies, a multi-asset fund which acts as a one-stop portfolio: “It is down just 2.8 per cent this year, which shows how diversification can protect against a crash.”
Alternatively, Rathbone Strategic Growth Portfolio is less cautious and more volatile, but should perform better when markets recover.
McDermott also tips Janus Henderson UK Absolute Return, which uses derivatives to make money from falling share prices: “Despite investing in UK equities, which are down around 30 per cent this year, the fund has fallen just 0.1 per cent.”
His other tips include Polar Capital Global Insurance: “People need insurance in good times and in bad, and it is often required by law. This is a fund for all conditions.”
He added that two funds for investors that feel brave enough to try to take advantage of the stock market drop are Investec China Equity and AXA Framlington UK Mid Cap.
“The UK market looks cheap right now, with medium-sized firms especially taking a beating,” he added.
If you are still wary, you could park money inside your Stocks and Shares Isa allowance by midnight on April 5, to secure it for this year.
Only invest money in shares you do not expect to need for at least five years, to allow time for the recovery, or otherwise stick to cash.