The Daily Telegraph - Saturday - Money
Keep calm and use UK funds to protect your investments
After markets dived this week, experts tell Jonathan Jones which funds can make money with the minimum of risk
Most major global stock markets experienced heavy losses this week as hopes of a peaceful resolution to ongoing trade war tensions between America and China were put on hold. The falls came after the news on Thursday that Meng Wanzhou, chief financial officer of Huawei, the Chinese telecoms giant, was arrested in Canada and faced extradition to America.
Just five days earlier, US President Donald Trump and Chinese president Xi Jinping had agreed to a trade truce at the G20 summit of nations last week.
On the day of the arrest, stock markets across Europe and in Britain fell by more than 3pc and markets in America and Asia were also down.
Laith Khalaf, senior analyst at fund shop Hargreaves Lansdown, said: “The market is spooked by the damage a continuing trade war could do to global economic prospects. That’s hitting share prices in Britain and overseas.”
The FTSE 100 suffered its largest daily fall since the EU referendum in June 2016, losing more than 3pc, as this news was coupled with ongoing uncertainty over Brexit.
The falls will prompt many investors to ask how they can protect themselves against heavy losses when markets tumble.
For those who want to invest in the British stock market through funds without exposing their cash to excessive risk, Telegraph Money asked a number of analysts to suggest their top options that should generate returns while also protecting investors in periods of market volatility.
James Calder, research director at City Asset Management, said a good choice would be JO Hambro Capital Management UK Opportunities. The fund has had quite a high cash position for some time as it has been waiting for the market to fall and prices to come down before investing.
“It is holding 23pc in cash right now and using the current environment to buy things it likes,” Mr Calder said.
That cautious strategy has been a good one this year, as the fund has returned 0.5pc while the FTSE All Share has lost 6.8pc.
“It’s the sort of thing that if your granny was holding it she would be quite happy with it,” Mr Calder said.
Another option is Evenlode Income, according to Simon Evan-Cook, Premier Asset Management fund of funds manager. This has been the third-best fund in its sector this year, up 3.7pc. However, new investors pay a 5pc initial charge.
Mr Evan-Cook said every market sell-off was different but high-quality companies tended to perform well in all scenarios.
Run by Hugh Yarrow and Ben Peters, Evenlode Income’s two largest holdings are in consumer companies including Diageo, which makes Johnnie Walker whisky and Guinness, and Unilever, which owns Ben & Jerry’s and Marmite.
An alternative to backing consumer brands is to look at a fund that already buys cheap companies. The theory is that as these firms have already fallen, they have less far to go in a sell-off.
Sheridan Admans of The Share Centre said Schroder Income could be a good choice for investors pursuing this strategy. Managed by Nick Kirrage and Kevin Murphy, the fund is invested in out-of-favour companies such as education service provider Pearson and has a large percentage of its assets in banks.
An added benefit is that it typically invests in companies that pay a dividend, which helps to dampen the risk to investors. It also has a focus on companies with overseas earnings, giving it some protection in the event of a no-deal Brexit. The caveat with this is that the strategy will not perform as well when the market is rising, and the fund has struggled in recent years. But so far this year it has been the best in its sector, up 2.7pc.
In a similar vein, Ben Yearsley of Shore Financial Planning said Alastair Mundy’s Temple Bar investment trust was another good option as it had a “consistent process and has delivered over the long term”.
Chris Metcalfe of Iboss, which builds portfolios for financial advisers, said one option for investors who wanted to limit their exposure to the UK stock market could be a fund that combines stocks and bonds.
John Stopford’s Investec Diversified Income aims to reduce risk while delivering strong returns. It has done this over a long period, Mr Metcalfe said, and has done well this year, rising by 0.8pc, the best in its sector.
Readers can also consult the Telegraph Money Defensive 10 online: a list of 10 funds we believe stand out while offering protection against the ups and downs of the market. See telegraph.co.uk/go/defensive10.
Aservice that automatically switches suppliers and a cap on charges for long-standing customers should be central to the competition watchdog’s investigation into the so-called “loyalty penalty”, a charity has urged.
The problem, which according to the consumer rights charity Citizens Advice costs the average consumer £900 a year, is rife even in areas where people can easily move between providers, such as insurance or broadband. A customer who comes to the end of a fixed-term deal or annual policy could find themselves moved to a much higher rate if they do not shop around for a better offer.
The Competition & Markets Authority (CMA) said it would look into this after Citizens Advice launched a “super-complaint”.
Nick Munday, 61, from South Yorkshire, found his annual home insurance premium had risen from £590 to £1,989 in the 21 years he had been with Santander. After reading about the super-complaint he was able to find cover with another provider for less than £500. After he complained, Santander offered a premium of £750.
He said: “Companies should not be consciously ripping off people who are loyal to them. Maybe I was naive and should have switched every year but busy people can’t always do that – once you have done your gas, electricity, insurance and everything else you won’t have any time left.”
Santander said the new price was not like-for-like and the premium had been affected by a claim in 2014, later withdrawn. A spokesman said: “Santander is constantly working to ensure that our prices are fair and competitive. We will continue to do this and the Citizens Advice super-complaint will be a key consideration for us.”
Martyn James of Resolver, a consumer rights group, said rules required firms to treat customers fairly. He added: “If you can show that you have been disadvantaged because of factors outside your control, you could ask for your money back. It could be a huge mis-selling scandal.”