There is little doubt Britain faces one of the deepest recessions in history.
This month, the Bank of England warned the UK economy faces its worst downturn in 300 years, while chancellor Rishi Sunak said it was very likely we are in the middle of a ‘significant’ recession as we speak.
The hope is our economy will bounce back once lockdown is lifted, but a second coronavirus spike could hinder recovery.
But investors need not despair — here are ten simple steps you can take to be well positioned for the rocky ride ahead.
The Bank of England has warned the UK economy faces its worst downturn in 300 years, while chancellor Rishi Sunak said it was very likely we are in the middle of a ‘significant’ recession
1 Diversification of investments is paramount,’ says Darius McDermott, managing director of FundCalibre.
By investing in a wide mix of shares, fixed-income assets such as corporate bonds and alternative investments like gold, you will help to spread the risk.
2 He also urges investors not to give up on a regular savings habit, where you drip feed money into your investments. ‘While you don’t want to lose too much as and when the markets fall, you don’t want to miss out on any rallies either,’ he says.
3 It’s not all doom and gloom after all. Most sectors have taken a hit but technology companies such as Zoom, Netflix and Amazon have seen share prices rocket as families stuck at home rely on them for work and entertainment.
Video-conferencing app Zoom, for example, is up more than 130 pc so far this year.
The sector is expected to see further growth as many people may retain habits adopted these past two months.
Investors looking to cash in on this growth can spread the risk by investing in a fund which holds a range of companies.
Mr McDermott suggests the Axa Framlington Global Technology fund, which has Apple, Google owner Alphabet, Facebook and Amazon in its top ten holdings.
If you had invested £10,000 five years ago, it would now be worth £27,900.
4 Healthcare is often deemed recession-proof — particularly one caused by a pandemic, as it is expected to see considerable investment over the next decade.
Mr McDermott tips Polar Capital Global Healthcare Trust, which focuses on companies in the pharmaceuticals, biotechnology, medical technology and healthcare services. The fund has turned £10,000 into £14,300 in five years.
The hope is our economy will bounce back once lockdown is lifted, but a second coronavirus spike could hinder recovery
5 Quality companies in sectors directly hit by lockdown are also worth backing, according to David Coombs, head of multi-asset investment at Rathbones.
He likes Ecolab, for example, which provides cleaning products to hotels and restaurants, and pest control firm Rentokil.
He says: ‘Ecolab’s products tend to be more expensive than rivals but significantly more efficient and effective. Its market share grew in the 2008/9 recession. Rentokil competes with many local companies but it can gain market share through acquisition or the financial failure of the smaller players.’
6 Jason Hollands, of Tilney Investment Management Services, highlights businesses providing consumer staples — items we buy irrespective of how the economy is doing, such as food — which he says are well positioned.
He tips Lindsell Train Global Equity, which has a large holding in Unilever, the consumer giant home to household brands such as Marmite, Dove soap and Magnum ice cream, and Diageo, the global drinks company which owns Johnnie Walker whisky, Smirnoff vodka and Tanqueray gin.
The fund has turned £10,000 into £21,440 over five years.
7 Many investors may now be looking to hold more money in corporate bonds — where investors are paid interest to lend money to companies — rather than the stock market, since the Government has acted as a backstop to help busi-nesses and workers stay afloat.
Mr McDermott says: ‘In a world where interest rates are now likely to be rock bottom for another decade, [bonds’] yield of 3-3.5 per cent is very attractive for those looking perhaps to fill the income gap left by dividend cuts.’
He tips the TwentyFour Corporate Bond fund, which invests in highly rated bonds from companies and the Royal London Corporate Bond. They have turned £10,000 into £12,500 and £12,250 respectively over five years.
8 Another recession- mitigating asset class is infrastructure. Mr Hollands says: ‘The underlying projects are typically on very long contracts of over 20 years, often backstopped by government spending.’
He tips Lazard Global Listed Infrastructure Equity, which has turned £10,000 into £12,890 over five years — although an investment made a year ago would now only be worth £9,278.
9 Gold also typically performs well in turbulent times, too, because its performance is not tied to stock markets and investors buy more.
Mr Hollands tips Invesco Physical Gold ETF, which has turned £10,000 into £18,060 in five years.
10 Alternatively, you could opt for a one-stop-shop multi-asset fund, which ensures diversification.
A dedicated fund manager splits the money between funds that invest in shares, bonds, cash and alternative assets such as infrastructure or gold.
Diane Earnshaw, at investment research group Square Mile, suggests Troy Trojan, which has turned £10,000 into £13,200 over five years.
Investors should remember we will recover — history tells us so.
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