Beat virus slump with bargains for the bravehearts

Six trusts laid low by coronavirus that should look healthy in the long run

Wealth PAGES 58-59

THESE are difficult days. At times, it feels like the world is shuddering to a halt. There are fewer people as I wind my way to and from work every day and night on public transport. The high street where I work is quieter than it has been for a long time and local restaurants are lucky to be half full. We seem to be edging ever closer to inevitable lockdown, confined to our homes while waiting for the coronavirus hurricane to abate.

It’s hardly a backdrop from which to wax lyrical about investments and talk about wealth building, but I’m going to give it a go – so persevere with me.

First, the bad news. However you look at it, there is no doubt that coronavirus is going to impact adversely on our economy and the wider global market. Company earnings are going to fall and profits will be trimmed – and in some cases coronavirus will be the straw that finally breaks the camel’s back.

For sure, airline Flybe will not be the only corporate casualty, although some experts say the airline was a basket case long before the virus wrapped its evil claws around the globe.

Other companies – large and small – are likely to fall by the wayside despite assurances from the Government in the past few days that it will do all it can to help business through the difficult months ahead, including the provision of ‘emergency loans’.

We will probably learn a lot more about the Government’s plans on Wednesday when new Chancellor, Rishi Sunak presents the Budget – please, Chancellor, no tax increases.

Yet, according to the experts, coronavirus is unlikely to be with us for long, peaking in May and June. Maybe then the economy will move into recovery mode and by this time next year we will have moved on. I do hope so.

For investors with Isas and self-invested personal pensions, coronavirus has already impacted on their wealth, triggering sharp falls in stock markets, not only here but in Asia and the United States. And according to some commentators, further corrections cannot be ruled out – maybe, 20 per cent from here.

Yet, no one really knows. For every investment bear, there is an investment bull.

According to a straw poll by wealth manager Interactive Investor, most investors (53 per cent) are currently taking the falls on the proverbial chin and leaving their portfolios untouched. Only 10 per cent have so far reduced their exposure to equities and gone into cash.

For those investing for the longterm – in other words, most of us – weathering the storm is the best way forward.

As Peter Hargreaves, co-founder of wealth manager Hargreaves Lansdown said last week, timing the market – selling high and then buying back when it has reached the bottom – is ‘ invariably pure luck’. ‘Time,’ he added, ‘is far more important than timing in investment.’

In other words, it’s better to be in the market for the long term rather than constantly diving in and out.

The interesting slice of Interactive Investor’s research is that 35 per cent of its investors have been exploiting market falls to buy shares, investment trust sand investment funds that are significantly cheaper than a week ago.

It ’s a brave strategy, but it shouldn’t be discounted. Investment fund managers often use stock market corrections to buy equities that they like on the ‘cheap’. It’s a tactic that veteran fund manager Colin Morton, of investment house Franklin Templeton, has been using in recent days (see opposite).

He’s been adding to stakes in companies he knows will come out of the other end of the coronavirus crisis – the likes of Legal & General that reported some impressive 2019 results last week, BP and Shell. Interestingly, he hasn’t sold a single holding within his fund – just used any cash within the fund and money coming in from new investors to buy more equity exposure. Of course, it’s not Mr Morton’s personal wealth he is risking, although he does have money tied up in the fund. But as

Ben Yearsley, a director of Shore Financial Planning, told me last week: ‘It might seem nerve-racking s eei ng your i nvestments f al l sharply but that is part and parcel of long-term investing. Embrace the dips and use them to buy into the market.’ So, do a ‘Morton’ – a strategy most investment managers are currently employing.

One of the best ways for investors to pick up stock market bargains is to invest in quality investment trusts. Listed on the stock market, these vehicles are invested in a portfolio of shares, so offer investors diversification.

They are managed by some of the best investment brands in the country – the likes of Aberdeen Standard Life, Baillie Gifford, JP Morgan and Janus Henderson. Also, investment charges do not tend to bite too deeply into investor returns.

Some have also been around since time immemorial – or as Annabel Brodie-Smith of the Association of Investment Companies more eloquently puts it: ‘Some investment trusts have survived two world wars, the Great Depression, the bursting of the technology bubble in 2000, the 2008 financial crisis and continue to help investors meet their needs.’ Well said. What makes some of these trusts more appealing now is that their share prices do not reflect the value of their underlying assets – essentially a result of falling stock markets and the fact that more investors have been selling shares in these trusts than purchasing them. The technical term is that the shares of these trusts stand at a ‘discount’ to the value of the underlying assets. Bigger discounts than for a long time.

When markets bounce back (fingers crossed), investors in these trusts should not only benefit from the rise in share prices, but from a narrowing of these discounts. A form of performance top-up.

Opposite are six investment trusts that currently sit at a discount, have meaty assets under management of more than £ 500 million, have been around for more than 30 years (reassuring) and have solid long-term investment records.

Long term, they should not let you down, but there will be many bumps along the way, especially over the coming weeks and months. So, for Bravehearts only – and to be held as part of a broadly diversified investment portfolio...