Choosing where to invest your money is never an easy task – and it’s even harder when global stock markets are still volatile after Donald Trump’s surprise election victory and Britain voting to leave the European Union.
When you also factor in question marks over the sustainability of Chinese growth, political problems around the world and uncertainty over potential interest rate hikes, the whole decision-making process looks akin to mission impossible.
However, experts insist it’s still possible to make money in turbulent markets as long as you do plenty of research, accept you may be in for a rather volatile ride and have an investment time horizon of at least five years.
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Understanding the environment
It’s important not to overreact as even big market events will seem like pretty insignificant blips when you reflect on them in the future, points out Tom Stevenson, investment director for personal investing at Fidelity International.
“Look at a 30 year chart of the stock market and the 1987 crash is barely noticeable,” he says.
“The reality is that stock markets are influenced by economic growth, innovation and the growth in corporate profits over time.”
Stevenson insists that anyone unsure about the benefits of investing in the stock market versus stashing cash under the mattress should compare the returns they would have achieved over the past 20 years from investing £15,000 or tucking it away in a bank.
“If you had invested it into the FTSE All Share index you would now have £53,430,” he says. “If you’d put it into the average UK savings account you would be left with a paltry £19,991. That’s a difference of £33,439 – far too big to ignore.”
What’s the best approach to take?
While this largely depends on your attitude to risk and the impact on your personal finances if you ended up losing the lot, a sensible decision in the current environment would be to embrace the benefits of diversification.
A diversified portfolio means being exposed to a variety of assets classes, such as equities and bonds, in the hope this makes it more resilient, according to Mike Brooks, head of diversified multi-asset strategies at Aberdeen Asset Management.
“Everyone has been wrong-footed by major political events this year, so having an investment process that relies on trying to call what’s going to happen in either a political or macro sense makes you a hostage to fortune,” he warns.
The key, he believes, is being patient and spotting lucrative investments.
“There will be opportunities and things to avoid but we still see there being a lot of potential out there for attractive returns from a range of different asset classes.”
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The most attractive trends
Spotting trends is vital. For David Coombs, head of multi-asset investments at Rathbones, technology is the key area – especially for the so-called ‘Generation Z’ that were born into this environment and will drive demand for new products and services.
“We’ve gone from prohibitively expensive primitive mobile phones to a compact personal computer in every pocket,” he says.
“Such changes have driven tectonic shifts in how we make, distribute, and buy and sell retail products.”
Looking to the future, Coombs argues that technology will have to be part of the solution if we are to retain standards of living and points out how broad strides are being made right now in the areas of driverless cars and artificial intelligence.
“To play this tech super-trend, we invest in Amazon.com and the Allianz Technology Trust,” he says.
“While the trust isn’t immune to the dangers of high-risk tech investments, we believe there are plenty of exciting investments in its portfolio.”
Coombs also identifies computer gaming names such as Activision Blizzard, Nvidia, Electronic Arts and Tencent as being among those potentially set for great things – as long as they keep pace with technological developments.
“Video gaming is no longer consigned to teenage boys’ bedrooms, but is now a widely held pastime for all,” he says. “It is also big business.
“In 2015, gaming made $91.8 billion; Hollywood films made just $38 billion.”
Sectors to consider
Adrian Lowcock, investment director at Architas, points out that value stocks, which include sectors such as financials and miners, have been in favour over the last few months. It’s a trend he expects to continue.
These stocks, which tend to trade at a lower price relative to fundamentals such as earnings and sales, are considered undervalued. “The advantage of value sectors is that investors are buying at attractive levels - arguably cheap,” he explains.
As far as sectors are concerned, Lowcock expects construction companies and selected industrial names to benefit from an increase in infrastructure spending around the world, triggered by more money flowing into the economy.
“This will benefit mid-sized companies and those with exposure to the United States,” he explains. “However, the money will take time to flow through and we may not see as much as is currently expected.”
Another interesting area for him is the pharmaceutical sector. “Their earnings look set to improve after a tricky 2016 as the patent cliff continued to impact on earnings,” he says.
“Pound weakness and US dollar strength should help boost earnings in 2017.”
Elsewhere, he argues that wider consumer staples names, including those involved in food, tobacco and household items, as well as bond proxies such as utilities, will have a mixed 2017 as money rotates out of the sector into value and back to bonds.
Stocks to consider
Graham Spooner, investment research analyst at The Share Centre, likes a number of companies in the packaging sector – particularly DS Smith, RPC Group and the Mondi Group, all of which have been on his buy list for a while.
“The need for packaging looks set to continue for the type of life people lead these days,” he says. “Companies are benefitting from more internet shopping and a growth in consumers having instant meals, which obviously requires more packaging.”
Although he likes this area of the market, Spooner is more stock specific in his general recommendations. Companies he likes to invest in have highly regarded management teams, low barriers to entry and a sustainable business model.
“I like Prudential,” he says. “Although it is in the UK and the US, the jewel in its crown is Asia where it’s one of the biggest operators. The growth potential from emerging markets in Asia should underpin the company over the longer term.”
Saga, which offers a range of products and services exclusively for the over 50s, is another favoured longer-term stock. “It’s a quality name and talks to a growing area of the population that tends to have more money to spend,” he explains.
“I don’t think it will set the world alight but over five years it’s one I might be tempted to tuck away.”
Spooner also likes Melrose Industries. “The management is excellent,” he says. “It buys underperforming engineering companies, improves their performance and then sells them off.” It would particularly benefit from an increase in infrastructure spending.
WPP, the advertising industry giant, is among the big names that Spooner argues is worth considering, especially given its leading position in the industry and track record of making little acquisitions.
“As well as big operations in the US it’s growing its emerging market content, as well as digital and online,” he says. “It’s one of the bellwethers of the industry, and on a long term view, could be a beneficiary of advertising demand.”
Experian, the credit ratings agency, is the final name worth considering. Although it doesn’t look exceptionally cheap, the company has a growing presence around the world and is set to play an important role going forward.
“More financial checks are being carried out on us and there’s not a great deal of competition so over the longer term it’s quite well positioned,” he says. “The company has also been expanding its product base and moving into other areas.”
Elsewhere, Matthew Beesley, head of global equities at Henderson Global Investors, suggests technology sectors offer a variety of potential investment ideas and cites German multinational software firm SAP as a prime example.
“It continues to benefit from the shift to cloud computing,” he says. “The introduction of its new S4-HANA product suite started to improve its market share – and these gains should lead to higher levels of operating margins and profitability in 2017.”
The views expressed in this article are the author's own and do not necessarily represent those of loveMONEY. The information included does not constitute regulated financial advice. You should seek out independent, professional financial advice before making an investment decision.
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