The British people have voted to leave the EU, there is political upheaval among the leadership of both main parties, and the possibility of breakup of both the UK and the wider EU is a very real one.
The internationally focused FTSE 100 lost 3.15% on Friday, after a dramatic early fall was followed by a bargain-hunter-led bounce that meant it ended the week higher than it began it. The blue-chip index was helped by sterling’s sharp fall, which made many big companies more attractive as international earnings become worth more in sterling terms.
But the more UK-focused FTSE 250 was much harder hit, falling more than 7% after the outcome was announced.
There is much for the markets still to fear, with uncertainty in every direction, and the outlook in the short to medium term at least is for continuing volatility – not least in the face of further elections in Spain, Italy and the US this year.
So what should investors do?
Experts have offered three key pieces of advice:
1 Don’t panic and sell your holdings. Mark Dampier of Hargreaves Lansdowne points out that markets may fall further, but they also tend to overcorrect and then bounce. ‘While moving to cash will shelter you from further falls, it also means you may miss any subsequent rises,’ he warns.
2 Remember that this is about long-term investment, so do your research to identify good opportunities, but don’t rush in, and don’t dip in and out of the market. ‘Leave shorting and short-term market movements to the traders,’ advises Dan Kemp of Morningstar.
3 Use any existing cash holdings to buy when the time is right. That, of course, can be a tricky judgement to make, but Brian Dennehy of research hub FundExpert suggests taking action if the FTSE falls as low as 5000. ‘The UK market was already looking decent value, and at 5000 it is a raging Buy – fantastic opportunity for small and mid caps plus income funds.’
What kind of investment ideas are being offered by the experts?
On Investors Chronicle, Darius McDermott of FundCalibre suggests looking at fund managers with a proven track record of strong performance in volatile times such as 2008/09 and also earlier this year.
Having crunched the numbers to identify those managers who outperformed in their sectors in both those recent periods of volatility, he came up with a shortlist of robust defensive suggestions across a wide range of sectors.
These include Baillie Gifford Japanese (Sarah Whitley), Fidelity Strategic Bond (Ian Spreadbury), First State Global Listed Infrastructure (Peter Meany), Investec Cautious Managed (Alastair Mundy), Liontrust Special Situations (Anthony Cross and Julian Fosh) and Schroder Asian Income (Richard Sennitt).
Jason Hollands of Tilney Bestinvest adds several others who also did relatively in both those previous difficult periods, including Troy Trojan Income (Francis Brooke), CF Lindsell Train UK Equity (Nick Train), Fundsmith Equity (Terry Smith) and Personal Assets Trust (Sebastian Lyon).
What about absolute return funds? They are supposed to produce positive returns in all market conditions, making them a great choice for troubled times – but many disappoint.
Reported on Money Observer, Brian Dennehy applied three screening tests to the absolute return sector, and identified just two absolute return funds that actually do what it says on the tin: Henderson UK Absolute Return and Threadneedle UK Absolute Alpha.
Meanwhile, for cautious investors seeking a bond fund, Square Mile research analyst Amaya Assan picked Axa Sterling Credit Short Duration Bond fund as her preferred choice.
Writing on Interactive Investor, Lee Wild highlights the continuing opportunities for investors prepared to ‘do a Buffett’ and buy in the face of fear to pick up ‘quality stocks at cheap prices’, though the real bargain hunters were out in force later on Friday.
He flags up quality financials such as Lloyds (down 21% on Friday) and Aviva (down 16%), as well as housebuilders such as Taylor Wimpey (down 29%), while his fellow commentator Edmond Jackson also likes the opportunity to pick up housebuilder Crest Nicholson (down 26.5%).
For those looking to hedge against future risk through exposure to gold, Jackson suggests gold miner Centamin (up 10% on Friday) as ‘a mid-250 play that is lower risk than gold mining juniors lacking an established financial record’.
He adds: ‘It is also on a relatively modest forward price/earnings (p/e) multiple at 17 times – compared, say, with Randgold Resources(which rose 14% on Friday and now stands on a p/e of 43 times).’
Tobacco giants such as British American Tobacco and Imperial Brands (both marginally up on Friday) were also tipped as a sensible defensive move by Questor in the Sunday Telegraph, as were drug companies AstraZeneca and GlaxoSmithKline (both up just over 3%), and National Grid.