A chance to buy into markets cheaply

With equities at historic lows they may offer more than gold and bonds

Global investment markets have been remarkably sanguine this summer, with most seeing a steady upward tick in prices, despite all the economic double-dip doom and gloom. The old City adage of sell in May and come back St Leger's Day would have served you poorly as an investor this year.

But with the eurozone problems looking as intractable as ever and global economic malaise spreading from the US and even China, there is more than a feeling that the summer represented calm before the storm. According to Jane Coffey, the head of equities at Royal London Asset Management, investment markets are "in pretty defensive territory so there is some upside available".

Against such a backdrop of uncertainty the advice that investors should consider buying into equities might seem unusual, but with equity prices at historic low levels they could potentially offer a better alternative to traditional safe-haven investments.

Equity income funds which invest in companies that consistently provide a dividend yield of around 4 or 5 per cent are, according to Ms Coffey, one way of doing this with minimal risk to the investor. The funds have remained fairly resilient throughout the credit crisis by investing in companies, such as Vodafone or GlaxoSmithKline, that have consistently provided inflation-beating dividend yields over a number of years, offering a buffer to market volatility.

"It makes sense that people look for the quality companies that give them a healthy dividend yield which are often telecoms, pharmaceuticals and utilities. So all defensive sectors but also well performing sectors," Ms Coffey says.

Investors with a slightly higher risk appetite, suggests Justin Urquhart Stewart, the managing director of Severn Investment management, could consider Exchange Traded Funds (ETFs), which invest in a whole market index such as the FTSE 100, rather than individual company stocks.

"Buying simple ETFs can be a very cheap and easy way of buying into markets as a whole and buying into quality stocks as a result. If in the US, for example, politicians fail to reach agreement on the fiscal cliff by the end of the year, that may introduce a degree of volatility into the S&P 500, which could present an opportunity to buy into the market cheaply," he says.

Equally if there are further problems in the eurozone, the Eurostoxx50 – which includes companies such as Siemens, BASF and Danone – could experience similar levels of volatility to last year, when it fell 20 per cent, presenting private investors with another buying opportunity.

"The good thing about ETFs is that you are buying into quality stocks without taking the risk of buying into those stocks individually," says Mr Urquhart Stewart.

"I would not be selling the pension fund to get into ETFs, but if you had some spare cash for a punt then it would be a better bet than the 2.30 at Newmarket," he adds.

Meanwhile, Jeremy Batstone-Carr, a director of private equity research at Charles Stanley, says investors have "no real alternative but to invest in the equity markets if they are looking for a reasonable return".

He suggests the markets are already questioning the safe haven status of British, American and German sovereign bonds.

"The credit ratings agencies are beginning to ask questions about the validity of Britain's triple-A credit rating. I think if we get another slice of bad data some of the ratings agencies are going to be chomping at the bit to downgrade Britain.

"It's not too unlikely that continuing disagreements about the budget deficit and the fiscal cliff could see the US suffer another credit rating downgrade at the end of the year. And failure to agree legislation could impact the US economy by as much as 5 per cent of GDP next year," Mr Batstone-Carr says.

Ms Coffey is equally dismissive of the trio's status as safe havens, particularly Germany.

"Germany is a very dubious safe haven for me. If a solution is found to the eurozone crisis then that will have an impact on Germany's safe haven status as yields will go up.

"If they don't and the eurozone breaks up and Europe goes into a deeper, darker recession, then Germany may stay a safe haven but people may not want to give their money to a country that they perceive as having been responsible for the EU's demise," she says.

The other favourite safe haven – gold – is also unlikely to yield any great return; although as usual the advice that investors should hold physical gold as part of a balanced portfolio of investments still stands.

For Mr Batstone-Carr, it is still possible that gold could reach $2,000 an ounce, or even as much as $5,000. Much, he says, will depend on the policies of central banks over the next year, and to what extent central banks in Europe, Britain and the US seek to devalue their currencies, which he argues are still over-valued.

Ms Coffey suggests this verges on the nuclear option, however. "It is quite hard for an individual investor to buy gold unless you have the money to buy individual gold bars. If you are investing in gold because you think Armageddon is coming, then you want to put your money into physical gold rather than paper gold or a gold ETF," she says.

"The other reason you might want gold is because you fear central banks will print too much money, reducing the real value of a currency or even causing hyperinflation, which means your gold bar becomes a physical asset," Ms Coffey adds.

For Mr Urquhart Stewart, gold is the investment world's equivalent of the teddy bear: reassuring but ultimately not much use.

"It could go up a little, but it's going to be marginal. Buy gold coins, or better still buy medieval gold coins; at least they are interesting, that's what I did."

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Austen Lloyd: Company Secretary

    Excellent Package: Austen Lloyd: EAST ANGLIA - SENIOR SOLICITOR LEVEL ROLE** -...

    Citifocus Ltd: German Speaking Client Specialist

    £Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...

    Citifocus Ltd: Performance & Risk Oversight

    £Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...

    h2 Recruit Ltd: Sales Director - SaaS (SME/Channel) - £140,000 OTE

    £90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...

    Day In a Page

    Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

    Christmas Appeal

    Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
    Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

    Is it always right to try to prolong life?

    Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

    What does it take for women to get to the top?

    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
    Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

    Knitting pretty: British Christmas Jumpers

    Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
    French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

    French chefs campaign against bullying

    A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
    Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

    Just what you need on a New Year hangover...

    Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
    Cuba set to stage its first US musical in 50 years

    Cuba to stage first US musical in 50 years

    Claire Allfree finds out if the new production of Rent will hit the right note in Havana
    Christmas 2014: 10 best educational toys

    Learn and play: 10 best educational toys

    Of course you want them to have fun, but even better if they can learn at the same time
    Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

    Paul Scholes column

    I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
    Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

    Lewis Moody: Lancaster has made all the right calls – now England must deliver

    So what must the red-rose do differently? They have to take the points on offer 
    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game