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Written by: Darius McDermott
29/04/2022
“Everyone has a plan 'till they get punched in the mouth'.” Find out why investors can learn from a boxing legend's mistakes, plus fund tips to get you started on the right track.

It is not often a quote by former heavyweight boxing champion of the world Mike Tyson is seen as either inspiration or educational – and it is even less common that it can be associated to finance.

Tyson was one of the hardest hitting heavyweights of all-time. However, he was also one of the most controversial and emotional – which often led to his downfall. He seemed to fall apart when the heat was on against formidable foes like Evander Holyfield and Britain’s own Lennox Lewis.

Financial markets today also face several formidable foes in the shape of rising interest rates, inflation and major geopolitical concerns following Russia’s invasion of the Ukraine.

It’s at these points of uncertainty that investors tend to pull the trigger and make their biggest mistake – divesting at the wrong time. Take Brexit for example. On the morning of that fateful day, many investors tried to pull their assets out of UK companies (causing several investor websites to crash).

Figures from the Investment Association show some £1bn was pulled from UK equities funds alone in June 2016. But fast forward six months and the FTSE 100 had returned almost 20%.

The same has happened at other flash points in recent history, such as the Global Financial Crisis or the Covid induced market sell-off in early 2020. The latter saw net retail sales of funds fall almost £10bn in March 2020 alone. Global equities subsequently rose more than 40% between the middle of March 2020 and the end of the year.

When we reach these flashpoints, I’m often asked by the press what investors should do. I usually tell them the best thing they can do is turn off their computer and stop looking at their investments every five minutes in these uncertain times – after all, any changes they make would effectively be closing the stable door after the horse has bolted.

I’m talking about this now because the press requests have been coming in again as investors worry about the ongoing war and rising inflation turning into stagflation – this is where inflation is combined with high unemployment and stagnant demand in a country’s economy.

The truth is, there is no right answer, and it depends on an investor’s risk appetite. I’ve previously talked about the defensive holdings investors could consider, while there are also a number of funds which are well positioned to mitigate the threat of inflation – such as gold or infrastructure-focused offerings.

But another way is to simply invest in themes for the long-term. I’m talking about investing in them and letting them get on with the job of making you money over the years. It sounds easy in practice – but these are asset classes that could easily fall 20-25 % over the short-term but have proven themselves to be sensible long-term investment decisions.

Below are four specific areas where the long-term tailwinds suggest strong returns for patient investors.

Smaller companies

Despite the challenges of recent years, smaller companies across the globe really have demonstrated their resilience. You do have to take the rough with the smooth – small-caps are often in the eye of the storm when markets are volatile, but they more than make up for it over the long-term.

A good example of a global offering here would be Baillie Gifford Global Discovery fund, which has returned 338% in the past decade, while in the UK, the Liontrust UK Smaller Companies fund, which specifically targets quality and avoids cyclical companies, has risen 342% over the same period.

Asia

PwC estimates 90% of urban population growth will take place in African and Asian countries with rapid urbanisation placing huge demands on infrastructure, services, job creation, climate and the environment in those regions.

Here I’d look to the likes of Fidelity Asia Pacific Opportunities or Matthews Pacific Tiger to take advantage of this growth. I’d also want to mention China here – a maligned market that has struggled badly in 2021, it should not be forgotten that it continues to have numerous tailwinds behind it like the rapid growth of the middle-class and the move to a consumption led economy. A fund like FSSA All China or Invesco China Equity fund are well placed to tap into these trends.

Technology

Another trend which is bound to accelerate is the adoption of technology. For this, investors may want to consider the likes of the AXA Framlington Global Technology fund. Jeremy Gleeson has managed this fund since 2007 and targets ‘new technology’ rather than ‘old technology’ – as he believes it is particularly important to avoid losers in this sector.

Another option is Sanlam Artificial Intelligence, which itself uses an artificial intelligence system to help find companies whose business models are aligned to benefit from this growing theme.

Environmental challenges

The argument for climate change is well documented. But we also have major concerns over water scarcity and biodiversity, with figures from The Living Planet Index showing an average 68% decrease in mammal, bird, amphibian, reptile and fish population sizes between 1970 and 2016.

A good all-rounder here could be the Ninety One Global Environment fund, a concentrated portfolio of 20-40 holdings, all of which contribute to the decarbonisation of the world economy.

Another could be the Rathbone Greenbank Global Sustainability fund, where each holding will have at least one positive environmental, social or governance attribute.

Darius McDermott is managing director of Chelsea Financial Services

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