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Picking winners to protect your portfolio in the next market downturn

Sheridan Admans analyses which sectors could protect your portfolio if there were another market crash.

Article updated: 20 September 2018 at 9:00am Author: Sheridan Admans

As Hong Kong’s main index entered bear market territory on Tuesday 11 September, falling 20% since January while the US bull market took its place in history, being considered by some as the longest on record, investors are naturally starting to ask questions about how robust valuations are. Investor anxiety is heightened by worries over contagion from political tensions and financial impacts from Turkey and Argentina as well as trade tension between the US and China, albeit global growth looks intact.

While consideration of a market downturn is the wrong side of the prevailing market dynamic, high valuations, the 10 year bull market, and a pickup in both volatility and interest rates could provide a catalyst for a change. With that in mind it may be prudent to start thinking about building some insurance into a portfolio.

When downturns come they are normally rapid declines in stock prices over short periods of time and if prolonged, can lead to panics which can perpetuate and compound the event.

Investors are told constantly that history is no guide to the future and while, in the main, I concur with this it does provide some useful information that should not be disregarded out of hand. Below I will look at how some financial instruments have acted at times of stress.


As we can see from the bar chart below, when the S&P 500 staged significant falls gold delivered gains.


As we can see from the chart above when the market crashed around September 2008 government bond prices rose, investors tend to see government stock as a safe haven asset in a crisis, while risky debt borrowed by companies don’t provide guarantees like sovereign debt.

Equity Sectors

The crash of 2008 and the tech bubble blow up in 2000 highlight which sectors withstood the shocks and those that took the brunt of the impact. This snapshot shows that investors, in periods of uncertainty, can potentially do better on a relative basis when invested in Consumer Staples and Healthcare stocks. Consumer Staples comprise of stuff you and I need, items you are unable or unwilling to live without, such as food, drink, personal products, tobacco, household items etc.

What to do

While the examples are simplistic and don’t take into account market nuances they do provide some pause for thought.

Predicting a market downturn can be difficult and eludes many investment professionals. Recognising one is not helped either by stretched market valuations rising on positive sentiment for prolonged periods of time. Sometimes market ‘gurus’ encourage investors to abandon rational thinking by uttering the infamous words ‘it’s different this time’.

What we can be sure of though is markets don’t rise in perpetuity and a well-balanced, diversified investment portfolio tends to withstand shocks better than those that are not. For those investors that would like some ideas of funds that could potentially absorb some of the shock from a market crash, I have outlined a few below.

Gold funds

Old Mutual Gold and Silver

This fund invests in both the physical metals of gold and silver and the mining equities. The manager aims to deliver 2-5 times the return of gold in a bull market and match the return of gold in a bear market.

Investec Global Gold

This fund invests in companies that are exposed to gold mining and which tend to have a higher degree of liquidity than investing directly in the physical product itself.

ETFs may also be used in the fund where deemed appropriate. Gaining exposure to gold via a fund means that your returns are not only reliant on demand for the asset but also the management of the company mining and/or managing the raw material.

Source Physical Markets Gold

The Source Physical Gold ETC aims to provide the performance of the spot price of gold through certificates collateralised with gold bullion which is held in J.P. Morgan Chase Bank's London vaults. The vast majority of the gold bullion collateral is held in allocated gold bars.

Gilts funds

iShares FTSE UK All Stock Gilt (IGLT) 

This fund forms part of BlackRock's core range of funds where management costs are low. In this fund's case the total expense ratio is 0.2% and it has tracked the benchmark well.

Allianz Gilt Yield

The Allianz Gilt Yield fund is managed by Mike Riddle; he seeks to outperform the FTSE Gilts All Stocks benchmark in a relatively consistent and incremental manner without taking significant relative risk. He aims to maximize total returns through a prudent and stringent management process, underpinned by his longer-term analysis of the prospects for the UK economy and the gilt market.

Equity funds

Polar Capital Healthcare Opportunities

The fund is managed by Dan Mahony and Gareth Powell who joined Polar Capital in 2007. The fund will typically hold between 40 and 45 stocks and is not constrained by managing to a benchmark. The managers take a fundamental approach to analysing companies to meet their selection criteria.

Rathbones Income

While this fund is not a Consumer Staples fund, the manager, who has managed the fund since 2000, has a great deal of expertise in managing UK assets and his portfolio currently has a high weight exposed to consumer products. While this weight can change over time the manager is focused on owning companies that focus on fundamental balance between the quality of a company’s earnings and the price he is willing to pay for those earnings, which should provide investors with some comfort that he is not chasing momentum.

The portfolio today looks more like one built to withstand the market downturn of 2000.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Sheridan Admans portrait photo
Sheridan Admans

Investment Manager

Sheridan co-manages our ES Share Centre Multi Manager funds and heads our team of research analysts. He is a chartered wealth manager and qualified financial adviser, and his qualifications include the Securities & Investment Institute (SII) Diploma and an MBA in investment analysis.