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Global market sell-off: fund ideas for capital preservation

Paloma Kubiak
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Paloma Kubiak

Wall Street suffered its worst day in months yesterday, causing a ripple effect across global markets. With the return of volatility, here are three fund ideas for investors.

As the Dow Jones fell more than 800 points, the UK’s FTSE teetered on the brink of market correction territory, the Nikkei fell by 4% and European markets hit a 20-month low.

While the global market sell-off comes as no surprise to many given the Fed’s interest rate hikes, rising oil prices and impending trade wars between the US and China, investors will be hoping this is a short-term blip.

Adrian Lowcock, head of personal investing at Willis Owen, said the Fed chairman’s comments last week on further rate rises sparked a sell off in bond markets which has finally reached equity markets.

“Markets fear the Fed will raise interest rates faster and higher than initially anticipated. This scenario usually ends up triggering a recession in the US which would be felt on a global scale.

“However, we’re not there yet and the effect on equity markets so far has not been too significant. Given segments of global stock markets such as the Technology sector have been trading on high valuations, some profit taking and correction are inevitable,” he said.

Lowcock added this is a good opportunity for investors to revisit goals, assess investments and look at how they’re performing in volatile, falling markets.

“The next step is to determine if any changes need to be made to ensure investors are well diversified with assets that can preserve capital in these situations as well those which can grow in rising markets,” he said.

Three fund ideas

He lists the following fund ideas for investors:

Newton Real Return – Iain Stewart’s first priority is capital protection. He then looks to deliver returns of 4% above cash per annum over the longer term. Stewart runs an unconstrained and flexible approach which initially uses Newton’s thematic research to identify opportunities and to position the portfolio appropriately.

The fund invests in two parts; a core element which invests in shares and bonds with a long-term perspective and low turnover. Around the core Stewart invests in cash, government bonds and derivatives in order to reduce risk.

Jupiter Absolute Return – The fund has a record of showing negative correlation with equity markets during periods of corrections offering investors some protection. The fund, managed by James Clunie, can invest in or sell global equities.

Clunie uses the same screens to identify stocks he wants to sell, as those he wants to buy, such as valuation and quality factors. Stocks are only sold when Clunie can identify a catalyst to short the market and he has built a reputation as one of the few managers with a distinct skill in short selling.

Blackrock Gold & General – Gold is often a good defensive asset in times of markets stress and offers investors protection. The fund invests primarily in gold and other commodities and looks to identify good companies which use cash wisely and keep costs low.

Manager Evy Hambro considers the factors likely to influence the price of gold and other commodities and build this into company analysis. The fund invests in large, mid and riskier smaller companies although the bias is towards the larger cap end of the market.