There are plenty of uncertainties ahead to muddy the investment waters, from the impending EU referendum and American presidential elections to the state of the Chinese and US economies and the policy measures they employ.
But the single biggest worry for many investors is now the threat of a Brexit when the UK goes to the polls on 23 June, which could result in at least short-term currency and market falls.
A study by The Share Centre at the start of April found that 25% of investors were looking to reduce risk, with almost half pointing to the EU referendum as their reason.
Gavin Haynes of Whitechurch Securities warns that an ‘out’ vote would weigh more heavily on domestically focused UK small and medium sized companies, whereas export-oriented firms would benefit from falls in sterling that made their goods cheaper overseas. But he is sticking with some exposure to both areas of the UK market, on the view that an ‘in’ vote is more likely.
Darius McDermott of Chelsea Financial Services points out that many investors are relatively heavily weighted towards UK equities, and that increasing exposure to global equities, perhaps through a fund such as Baillie Gifford Global Discovery, could be a useful way to insure against possible Brexit.
An alternative could be to hold a global specialist. McDermott likes infrastructure in this regard, and picks out First State Global Listed Infrastructure.
Another possibility is a global energy fund, where fortunes have improved this year. ‘Guinness Global Energy falls within the Global sector and can give clients access to that upside while also diversifying outside of purely British holdings,’ he says.
The Share Centre recommends investors look for ‘medium risk’ holdings that aim for a balance of capital security and steady returns. It too takes a global perspective, tipping Fundsmith Equity and Old Mutual Global Equity Absolute Return as good medium risk choices.
Income investors, meanwhile, have other concerns weighing upon them. The outlook for UK dividends is not a rosy one, with Capita’s latest dividend report forecasting that 2016 will be the poorest year for dividends since 2010.
However, Brian Denehy of Fundexpert is not unduly pessimistic, provided investors ‘are discerning in their fund choices’. He likes JOHCM Equity Income as a value-based fund with around 45% in dividend-paying smaller and mid-cap companies, rather than the FTSE 100 stocks that many income funds focus on – and that are more likely to see dividend cuts.
He also points out that there are seven times more income opportunities outside the UK. Schroder Asian Income and Schroder Asian Income Maximiser are good bets, he says, given that ‘Asia Pacific ex-Japan accounts for just 11% of global market cap but 39% of stocks yielding more than 4%’.
Finally, for investment trust bargain hunters, Money Observer tips two investment trusts on unusually wide discounts at present.
JPMorgan Japanese is on almost 15% discount, having been on just 8% a year ago – and that’s despite the fact that it is top of the Japan sector over one year.
Meanwhile, on the back of the sell-off in smaller companies earlier this year, BlackRock Smaller Companies has moved from a 4% discount in January to a 12% discount now. As well as an impressive long-term track record, it pays a 3.9% dividend.
