Mark Dampier: Double dip or not, buy bonds and blue chips
Saturday 04 September 2010
This week I thought I would depart from the usual fund review and look at the wider economic picture and its implications for markets. Since the start of August concerns about a double-dip recession have come to the fore, largely because of deteriorating economic data in the US. The debate over whether this will happen is currently raging in financial circles, and the answer has huge consequences for investors.
I'm afraid I have no level of certainty as to whether the double dip will happen or not, and the debate may continue for some time. However, there is little doubt in my mind that Western economies are in for a long grind, and a period of weak growth may be the best we can hope for. For many people, of course, the past 18 months or so hasn't felt so bad. Indeed, for those who haven't lost their jobs the recession has probably passed by unnoticed, and if you have a variable rate mortgage you are probably hundreds of pounds a month better off. Unfortunately, things cannot change for the better from here. Interest rates won't fall any further from their current low and, with wages falling and taxes rising, life is going to get more uncomfortable.
Given this scenario it is hardly a surprise that we have seen a huge bond rally in the past few weeks. Ten-year gilts are at historic lows of 2.8 per cent and investors are even talking about a bond bubble. This is overblown. A bubble would be signalled by frenzied bond buying by all types of investors. Looking at the markets today I don't see this. More plausible is that given the deteriorating background, momentum investors (possibly hedge funds) have made up their mind that the US Federal Reserve and the Bank of England are going to make further rounds of quantitative easing. If they are right and there is more QE to come, there could be a flurry of government bond buying. What they are aiming to do is get in ahead of other investors and make a quick profit.
From an investor's point of view I believe interest rates are going to stay low for a long time. Therefore I remain a buyer of corporate bonds as well as what I might term "high-quality" high-yield bonds. These are paying a far superior yield than government gilts and, as long as defaults remain low, they should provide good returns – so long as we don't slip into a deep recession that causes a significant number of companies to default. Two excellent funds to take advantage are Invesco Perpetual Tactical Bond and Jupiter Strategic Bond, both of which have a high degree of flexibility to change the types of bonds they hold.
For equities, a fresh bout of QE would probably send the markets higher, but until we get a clearer view of the prevailing macro-economic data, markets are being held to ransom. One thing I am sure of is that there are no quick fixes to the problems faced by Western economies.
While politicians might like to have a quick fix, the only real solution is time. The hangover of debt governments and consumers are facing after spending recklessly in the Noughties can be cured only through hard graft to repay debt. Until this is done we can't go back to pre-2008 consumption levels.
What other investments are suitable for this era of financial rehabilitation? In a world of low interest rates the income on offer from large, well-managed blue-chip companies stands out as a remarkable opportunity, so the case for equity income funds such as Adrian Frost's Artemis Income is strong.
I also want some wise heads looking after the core of my portfolio, and here I would single out Phillip Gibbs's Jupiter Absolute Return Fund and William Littlewood's Artemis Strategic Assets Fund as flexible mandates well equipped to cope with the rigours of the next few years. They can invest in a range of different assets and can employ techniques that make money in falling markets as well as rising ones.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent
Will your credit card rewards be scrapped following new EU rules on charges?
What would happen if you put a statistician in a casino with £1m?
Simon Read: 'Has Phoenix done it again on charging too much for its life policies?'
Simon Read: 'The fight must go on over equality on expat pensions'
Pension freedoms: How to deal with cold calls from scammers
- 2 Smartphones are making children borderline autistic, says psychiatrist
- 3 Why this father didn’t hide his daughter’s heroin overdose in her obituary
- 4 Company breaks open Apple Watch to discover what it says is 'planned obsolescence'
The sickening truth about food banks that the Tories don't want you to know
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
Rupert Murdoch berated Sun journalists for not doing enough to attack Ed Miliband and stop him winning the general election
iJobs Money & Business
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...
Day In a Page
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms