In tricky times, sometimes it pays to swim against the tide
Contrary investors can reap rewards, if they are careful, reports Julian Knight
Sunday 09 May 2010
Chaos in Greece, the Dow Jones index nose-diving on fears over European government debt, a hung parliament in the UK – there are few positive reasons to invest in stock markets at present.
However, there are brave souls out there that pride themselves on swimming against the tide, the so-called contrary investors. So, in these difficult and choppy times, can you learn anything from their approach?
"It's better to buy when people are fearful and sell when they are optimistic, but many investors can't help going with the herd," says Ben Whitmore, manager of the Jupiter Special Situations and well-known contrarian. "Take the market at the moment. Lots of managers and investors are buying into the China success story, but I think a lot of the upside has happened so I have positioned myself elsewhere, such as the pharmaceutical sector, which has some good companies, currently valued at 40-year lows."
Barry Norris, manager at Ignis Argonaut European Alpha Fund, sees his own area of expertise as the arch contrary play at present, even with the civil unrest in Greece and ructions over the future of the euro as well as the debt of the Pigs – Portugal, Ireland, Greece and Spain. "Europe has been the forgotten market for many investors but the German economy is booming and there is a strong recovery under way elsewhere in Europe. There are difficulties, sure, but the real economy is doing well again and there are opportunities," Mr Norris says.
Another contrary play favoured by Mr Whitmore is housing in the US, originator of the sub-prime boom-bust. "A lot of the firms which have survived look very good value and the bad news has happened," he says. "Contrary investors tend to sell a little early on the upside, but make up for this by buying back into markets in a piecemeal way."
This, though, seems to require timing the market, which is usually a no-no for private investors, who don't have access to the same resources as City insiders. "You can lose your shirt," says Rob Morgan, analyst from independent financial advisers Hargreaves Lansdown. But by "focusing on stock markets and sectors which have taken a battering, and drip-feeding money in, you can take advantage of any recovery".
The cheapest, most easily accessible way of drip-feeding money into a market is via a unit or investment trust saving scheme. These allow investors to pay in as little as £25 a month into a fund which invests in a basket of shares.
"Look for fund managers who are contrarian and take strategic positions rather than just shadow an index," Mr Morgan says. "Another option, if you want to put in a lump sum, is to go for an exchange-traded fund. These give you exposure to any number of countries or investment sectors."
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