SIX SAFE HAVENS
WITH so much global uncertainty over politics, economics and international relations, many investors may be tempted to put their cash under the mattress rather than risk it on the stock market.
But there are some investments available that can help protect your long-term wealth. These ‘insurance policy’ investments might not produce returns that shoot the lights out, but they can provide much needed shelter if stock markets take a tumble.
1 GOLD
THIS precious metal is often a first port of call for nervous investors. Gold is seen as a safe haven at uncertain times because it provides a physical store of value. While a company could go bust or default on a bond interest payment, you can always sell a lump of gold.
But keeping gold coins or bullion around the house does not represent a practical way to invest.
Nathan Sweeney is senior investment manager at fund manager Architas. He suggests getting exposure to gold by using an exchange traded fund such as iShares Physical Gold.
This is a low-cost type of fund which tracks the price of gold. It is backed by physical gold which means it owns bullion to the value of the amount investors have in the fund.
Sweeney says: ‘You could also invest in silver. Its price moves in a similar way to gold but it is more widely used in industry, which can mean there is a steadier demand for it.’
The price of precious metals depends largely on supply and demand, so values can rise and fall sharply. Typically, the price increases when investors are worried. For example, the gold price reached more than $1,900 per ounce in 2011 when many people were concerned about the prolonged global financial crisis.
Sweeney says: ‘Investors should not just wait until they are worried to buy gold. It is sensible that, among your investments, you should always have a little money in this precious metal.’
Gold exposure can also be bought by investing in a fund such as BlackRock Gold & General. But this is invested in the shares of mining stocks, so is not immune from the usual vagaries of the stock market.
2 ABSOLUTE RETURN
THESE funds are designed to grow your money steadily, regardless of what is happening in the economy.
There are more than 100 of these funds available to investors and they all have different approaches to achieving that aim.
Some make big bets against the market known as ‘shorting’ or borrow money – so it can be tricky for investors to pick out a low-risk option.
Michelle McGrade is chief investment officer at fund supermarket TD Direct. She likes the TM Fulcrum Diversified Core Absolute Return fund, which aims to beat inflation.
It invests in a range of company shares, bonds and property. The fund, which launched in November 2014, is up 1 per cent over the past six months.
McGrade also likes Newton Real Return fund, which has around a quarter of its money in government bonds – not just UK bonds but those issued by the Australian and US governments. But she warns the £10 billion fund also has a lot of its money in UK, US and European company shares, which means it could be hit if the stock market falls. The fund has returned 21.7 per cent over the past five years and has not lost money in any of those years.
London-based FundCalibre rates individual investment funds. Among its top absolute return funds are Brooks MacDonald Defensive Capital, Henderson UK Absolute Return and Old Mutual Global Equity Absolute Return.
3 BONDS
THESE funds invest in debt issued by companies and governments. Bonds pay a fixed income for a set period, with the risk being that the company or government defaults and cannot pay its debt.
Another risk is the impact of inflation. If you agree to be paid 3 per cent a year when inflation is zero that is a decent income. But if inflation rises to 2 per cent, then you are only earning 1 per cent in real terms.
McGrade likes the Fidelity MoneyBuilder Income fund, which currently pays an income of 3.4 per cent.
It invests in government debt and the debt of high quality companies such as Transport for London and Electricite de France. It has returned 35.9 per cent over the past five years.
She also likes Kames Strategic Bond because of the manager’s focus on the economy. The fund, which invests in US and UK government debt as well as company debt, currently pays an income of around 2.2 per cent.
Among FundCalibre’s favourite bond funds are M&G Strategic Corporate Bond and Rathbone Ethical Bond.
4 INFRASTRUCTURE
A GOOD insurance policy for an investment portfolio is offered by infrastructure funds because their fortunes are not linked to the stock market.
Sweeney likes the John Laing Environmental Assets investment trust, which owns solar panels and wind farms.
He says: ‘It doesn’t matter what happens to company shares, bonds, gold or property – if the sun shines and the wind blows this investment trust will make money.’
The trust produces energy from its assets, which it sells back into the grid and then pays an income to investors, which is currently 5.5 per cent. Sweeney also likes the John Laing Infrastructure trust, which gets an income from longterm leases for assets such as airports and sea ports.
He says: ‘Developing a new port can cost billions of pounds, so governments will often hire a private company to do the work instead and then will pay them back on an annual basis, usually over 25 years, until they own the asset.’
Investors are paid an income – currently 5 per cent – from the payments that the investment trust receives.
5 EQUITY INCOME
WHILE investing in an equity income fund means that you still have money in the stock market, many of these funds seek out steadier companies to invest in.
Equity income funds want businesses that can pay a dividend regardless of how the economy is doing. As a result, many will gravitate to so-called defensive companies such as healthcare, utilities and tobacco businesses – those that people will always spend money with.
Sweeney likes the Fidelity MoneyBuilder Dividend fund, which invests in firms such as Unilever and Imperial Brands, which both make household products, and pharmaceutical company AstraZeneca.
It has returned 67.3 per cent over the past five years and pays an income of 4.2 per cent.