Investing for a turbulent 2019

The year has started with a bang but does it indicate that we're in for a bumpy ride in 2019?

Article updated: 22 January 2019 8:00am Author: Alice Rigby

For markets, 2019 certainly started with more of a bang than a whimper. On the 2nd of January, as many returned blurry-eyed to their real lives, Asian markets plummeted and European and US markets wobbled on news that China’s manufacturing sector had shrunk for the first time in 19 months.

In the week that followed, Apple, less than six months on from becoming the first trillion dollar company, was re-rated on news of faltering iPhone sales. It has since fallen 40% from that September high.

And, with Brexit on the horizon, an ongoing trade war between the US and China, and the beginnings of the US presidential race revving into life, it seems unlikely that markets will return in 2019 to the period in the sun in which they languished for much of the last decade.

So, what now for investors?

With cash being the best performing asset class in 2018, it is likely that many will head straight for ‘safe haven’ assets – and that makes sense, especially for the most cautious. However, it isn’t the only option. I outline some of the options below.

NB. if you are particularly concerned or unsure you should seek out independent financial advice, which will establish your specific needs and risk tolerance.

Many funds and investment trusts are run on the basis of long-term philosophies, which could take an entire cycle to play out. For those investors with longer investment horizons, it may make sense to stick with these managers and allow them the time to invest according to their philosophy and process.

Some of the best-known investment trusts are run for the long term, including Scottish Mortgage Investment Trust and F&C Investment Trust, the two largest mainstream trusts currently operating.

It is also worth considering how much variety is in your portfolio as equity returns begin to slow. Diversification is the core tenet of modern portfolio theory, which advocates that in a diverse portfolio of uncorrelated assets, risk in aggregate is reduced. We have seen a surge in institutional investors looking towards alternative asset classes for diversification as the current market cycle reaches its final stages.

In the last decade, multi-asset macro funds soared in popularity among investors seeking this kind of alternative exposure. However, these, including Standard Life’s GARs products, have struggled recently and fallen behind their benchmarks and own targets.

Several investment trusts offer an alternative route to assets uncorrelated to equity markets, employing hedge fund-like strategies. These strategies include relative value trading strategies, derivative contracts and short positions. In the past, trusts that use these strategies, including BH Macro and BH Global, have seen negligible correlation to mainstream equity indices.

Property similarly offers returns that diversified from equities. While the temporary shuttering of several open-ended property funds in the wake of the Brexit vote showed the potential illiquidity in this sector, property investment trusts have no such concerns due to their fixed capital bases. There is also a lot of diversity within the sector – trusts like Ediston invest in commercial property, while trusts like Residential Secure Income invest in social housing.

Another alternative asset class investors could consider is listed private equity. As we wrote last year, the pace of companies going public has slowed significantly in recent years, leaving a much bigger opportunity in private companies. However, this sector is more closely tied to public equity markets than some of the others discussed here. Standard Life Private Equity, NB Private Equity Partners and ICG Enterprise Trust all offer different approaches to the asset class.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

See what else we have to say
Alice Rigby

Marketing Manager, Kepler Partners

Alice manages the production and distribution of content at Kepler Trust Intelligence, an online research hub for professional and private investors. She was previously a financial journalist at Investment Week and an investment writer at Hermes Investment Management.