As ‘panic’ hits markets, five opportunities not to miss
Faced with ongoing turmoil in financial markets, how can investors fight back against the slump? Adam Williams reports
After a week of turbulence, investors could be forgiven for feeling anxious about their portfolios. Any period of poor performance in the markets is likely to set nerves on edge, but such corrections also offer investors who can look past the short-term noise the chance to buy companies, funds and trusts that have suddenly become undervalued.
As investors experienced this week, market corrections drag down the value of all firms. Investors who can hold their nerve in a falling market now have an opportunity to buy those companies which they have previously eyed up, but shied away from because of their high cost. Simon Edelsten, of the Mid Wynd International Investment Trust, said: “I haven’t seen equity markets panic like this in eight years. But corrections on this scale are like shopping opportunities.”
Will Hobbs, of Barclays Smart Investor, a fund shop, described the losses as “gut churning” but told investors not to panic at the recent sell-off. “The best advice at times like this is to stay calm,” he said. “There are attractive opportunities for those who can keep their cool.”
For individuals who have seen the value of their portfolio slump, this is a good opportunity to reassess and make sure they are fully prepared for any challenges ahead.
Think about the long term. Even if individual companies have lost value, do the fundamentals remain strong?
If so, consider persevering rather than selling low. In fact, if the price has fallen it may be a good time for investors to increase certain holdings. Set up a “crash list” of holdings that are fundamentally strong. When their value dips along with the wider market, take the opportunity to buy.
Cautious investors may also like to bring some of their wealth back into cash. Defensively positioned funds have already taken such action. The Ruffer Equity & General fund currently holds 26pc cash, while the Schroder MM Diversity fund has 23pc. Having extra cash also allows investors to act quickly to snap up bargains when the time comes.
For those looking for bargains amid the current turmoil, Telegraph Money has found five opportunities to consider.
Rathbone Global Opportunities
This well-regarded fund has a diverse portfolio of global companies. Darius McDermott, of Chelsea Financial Services, a financial adviser, said it had fallen in value since last month, meaning it now offered an attractive entry point for investors.
Emma-Lou Montgomery, of Fidelity Personal Investing, added: “As well as global brands like Amazon and Visa, this fund has defensive holdings that are less economically sensitive. This is useful in the current environment.”
Scottish Mortgage Trust
Despite being one of the top performers in recent years, Scottish Mortgage has not been immune to the market slump. Mr McDermott said its price had fallen by about 20pc in the past week and this was attractive for investors with a long-term outlook. The trust focuses on growth stocks that have good returns on capital, allowing returns to compound over time, he said.
Lindsell Train UK Equity Fund
Danny Cox, of Hargreaves Lansdown, the stockbroker, said there had been a bigger sell-off of smaller and mediumsized companies in the FTSE 350 than those in the FTSE 100.
Funds like this, which concentrate on larger companies, will be less affected by the market panic, he said.
Ms Montgomery added: “This
approach means that the fund is filled with big brands like Diageo, Unilever and Heineken, which are able to weather any storm.”
Jupiter European Opportunities
The price of this trust, managed by Alexander Darwall, has suffered in the recent sell-off. But Mr Cox backed its team to continue their recent strong performance.
With investments in diverse, multinational companies, this is another example of a trust with holdings in strong growth stocks that deliver attractive returns.
Matthews Asia Pacific Tiger
Given the sharp sell-off in many Asian markets, their companies are now far cheaper. Asia Pacific Tiger has fallen with the market, losing about 10pc of its value since January.
However, Mr McDermott said this fund took a very long-term view and was well-positioned to benefit from future growth in consumer spending, given its bias in favour of domestic businesses in Asia.
Bonus tip: luxury purchases
When looking at individual companies, Mr Cox said the future was positive for luxury brands such as fashion house Burberry and LVMH, owner of the Louis Vuitton clothing brand and Hennessy cognac.
Investors should be wary of the slowdown in the Chinese economy, Mr Cox said, given this is where much of the luxury sector’s growth has come from. But he added that the top-end brands were now well-priced after the recent sell-off.
“In uncertain times, luxury spending is often the first to be sidelined,” he said. “But companies with exceptional products and services always have an edge over their rivals.”
Asia Pacific Tiger takes a long-term view