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

The Sunday Telegraph - Money & Business - - Front page - Richard Dyson and Richard Evans

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.

Medicx

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.

HICL

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.

Te­tragon Fi­nan­cial

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.

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