Six shares to buy on the day of a stock market crash
If, as many fear, the market does correct, seize the chance to buy these fantastic quoted funds – at a knock-down price
You wake up to the morning news that Asian markets have been in freefall overnight. Breathless commentators await the opening of European and American bourses. And then shares in London, New York and elsewhere join the rout with force. The muchanticipated crash has arrived.
At that point you’ll need only two things: your computer and the following list of shares.
Everyone else might be fleeing in panic, but you will take the opportunity to buy quality assets at – for the first time in many years – prices that are, at least, reasonable and, at best, attractive.
In today’s market some of the most highly priced investments share several characteristics. They tend to have secure revenue flows, often linked to multi-year government contracts or the supply of essential utilities. They also tend to distribute income to shareholders in the form of dividends.
These are the sorts of investment that right now – as the market cranks higher and higher – are dangerously expensive. But in the chaos of a market correction, when all share prices are dragged down indiscriminately, there could come the chance to buy them at a reasonable price. You may need to be quick, however.
Interest rates, while rising, remain low, and hence the demand for solid, dividend-paying assets is likely to revive early in the aftermath of a crash. These types of investments could recover quickly and (as seen after Brexit) fully.
Current share price 88p; current yield 6.8pc; “buy at or under price” 75p – then yielding 8pc
This £380m company is a musthave on every income-seeker’s wish list, but at today’s price it’s very dear. The company owns about 160 mostly new GP clinics and healthcare facilities in Britain and Ireland, with rents largely paid by the NHS (and Ireland’s equivalent HSE). The average remaining lease is 14 years and some rents are index-linked, so revenues are solid. There is borrowing – about half the value of the portfolio – but at low rates fixed over long terms. While each share trades at 88p, the actual value of the property represented by each share is a far lower 73p.
In an ideal world a crash would drive the share price down, far closer to this underlying value. With annual dividends of 6p we have a yield at 88p of an already high 6.8pc.
Current share price 156.8p; current yield 5pc; “buy at or under price” 140p – then yielding 5.5pc
This £2.8bn quoted fund invests in infrastructure, including water companies, toll roads, schools and hospitals. Much of the income is government-backed and indexlinked, which is why HICL and other similar trusts have been driven to very high prices – in this case 6pc higher than the value of the underlying investments.
A risk to mention here is that Jeremy Corbyn has promised, if Labour comes to power, to renationalise the sorts of assets owned by these vehicles.
Dividends for 2017 were 7.65p, giving a yield at our hoped-for “crash price” of 5.5pc.
F&C Commercial Property Trust
Current share price 143.1p; current yield 4.2pc; “buy at or under price” 130p – then yielding 4.6pc
This quoted fund owns £1.3bn of British commercial property, including large retail complexes, office blocks and warehousing, with an attractive geographic spread and quality tenants, often locked into terms very attractive to the property owners.
Brexit caused a wobble but demand for the trust’s income – it pays monthly dividends of 0.5p – has since pushed the share price back up above the value of underlying assets.
Real Estate Credit Investments
Current share price 174p; current yield 6.4pc; “buy at or under price” 150p – then yielding 7.4pc
This portfolio offers another way to play the property market, although the assets are mortgages and property-backed bonds rather than buildings. The trust exploits a
niche in the market created by mainstream lenders’ reluctance to lend on certain commercial property deals.
It is therefore able to charge high interest rates on loans that offer plenty of security.
Nevertheless, its own shares are likely to be highly exposed to poor sentiment towards property in the event of a crash.
British Empire Trust
Current share price 726p; current yield 1.6pc; “buy at or under price” 650p – then yielding 1.8pc
Shares in this 129-year-old trust are exposed to stock market sentiment twice over: if panic takes hold in the markets its own shares will fall, but so too will the prices of its holdings, many of which are overseas-quoted holding companies. The value of its assets is therefore certain to decline, even before the effect of a widening discount in its own shares is felt.
This is despite the fact that many of its holdings are well-established businesses in which the same families have long held significant stakes.
Current share price $13.12; current yield 5.3pc; “buy at or under price” $11 – then yielding 6.1pc
Tetragon owns a diversified range of assets that should be well insulated from a stock market crash, such as hedge funds, property funds, cash awaiting investment opportunities, the asset management firms involved in running some of its own portfolio and esoteric instruments called “CLO equity”.
Again, this should not prevent the (already large) discount from widening in a sell-off.