Investing and Recession Rumours: Building Resilience into Your Portfolio

We analyse the asset classes best placed to provide diversification benefits in the event of a recession.

Article updated: 20 March 2020 2:00pm Author: Joe Healey

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Coronavirus is continuing to cause havoc in the global economy. There remains a lot of uncertainty surrounding future developments and therefore it’s important not to rule out the possibility of a global recession. The issue with this crisis is the fact the economy is struggling on both the demand and supply side. Add to this the plummeting oil prices and the impact on some of the major index’s constituents, the only outcome is falling stock markets. This has mostly been widespread with all sectors suffering. Despite this, it’s still important for investors to maintain a diversified portfolio; by this we mean having a spread of asset classes and exposures helping to distribute risk, which is often the best way for investors to mitigate impacts of a recession.

At times like these, secure assets with low correlation to markets can be good alternative investments during market downturns. Examples include gold, infrastructure and high-quality bonds. Using the 2008 financial crisis (GFC) as an example, the graph shows the relationship of alternative assets compared to the UK equity market and highlights the benefits they may offer during the hard times. During the two-year period (start of 2008 to the end of 2009) these assets actually provided a return to investors despite the FTSE 100 declining over the period, showing clear benefits to the inclusion in portfolios at that time - although it’s important to remember past performance is no guide to future performance. The reason for this is these assets tend to be recognised as relatively secure while providing good diversification of risk, and are supported by lower volatility levels than the equity market.

Another consideration for worried investors is that following three of the biggest crashes in financial history (Black Monday, the burst of the Dot-Com bubble and the global financial crisis of 2007-2008) the market always tends to rebound. Using the global financial crisis as an example; the FTSE fell by 42.39% at its lowest, but it then pared back losses to just 8.43% by the end of 2009. This shows the resilience of markets as a whole and that with a well-structured portfolio even the trickiest market environments can be navigated.

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Comparison FTSE 100 Infrastructure Gold Inv Grade Corp Bond
Biggest Fall -42.39% -9.93% -17.02% -9.25%
Total Return -8.43% 12.65% 26.43% 9.65%
Volatility (Ann) 30.96% 9.05% 28.10% 5.87%

Ways to access these resilient asset classes:

Gold - The Royal Mint Physical Gold ETC

Gold has historically been a secure store of wealth, helping investors navigate through difficult times. Being a finite resource, gold has intrinsic value which draws investors in when they require a flight to safety. For investors looking to access gold, Royal Mint Physical Gold is designed to track the spot price of physical gold at a cost of 22bps, the lowest among the gold ETCs in the market. It is 100% backed by LBMA gold bars held on the segregated basis by the Royal Mint in Wales and investors could redeem for gold bullion, LBMA bars and coins if they wish.

Infrastructure – First State Global Listed Infrastructure

Infrastructure is another great way to diversify portfolios tending to have lower correlation to other asset classes. During market downturns, this may be a way to shelter portfolios and even possibly benefit from upside potential. A solid selection for investors looking to gain exposure to infrastructure is through the First State Global Listed Infrastructure fund which focusses on the companies that can self-fund the expansion of their asset base, generate stable revenue and pay a growing dividend. The portfolio mixes its defensive and growth holdings according to the economic or business cycle and is mainly invested in the developed markets.

Investment Grade Corporate Bonds - Rathbone Ethical Bond Fund

Investment-grade corporate bonds are considered to be some of the more secure bond assets in the market, tending to associate with established and relatively stable companies. In order to become investment-grade standard, ratings agencies must deem the company to be reliable, signifying a lower likelihood of default risk. The Rathbone Ethical Bond Fund is best performing on risk-adjusted terms in its sector group across a five year period and also benefits from an ethical overlay, screening out ‘sin stocks’ ensuring all companies are benefitting society in some way or another. This is a strong fund investors can feel comfortable with regarding its ethical roots.


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 www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Joe Healey

Investment Research Analyst

Following his completion of the graduate scheme, Joe is an Investment Research Analyst covering equities. He holds a BA Hons Business Management degree and is currently studying towards CFA Level II after passing CFA Level I in June 2019.

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