Mark Dampier: Make sure your portfolio can handle a bumpy ride

The Analyst

It seems the downgrading of global growth expectations, rather than the downgrading of US debt by S&P, was the main catalyst for recent stock markets falls. The lack of political leadership both in the United States and in Europe hardly helped, and while I hope the market gyrations do not continue at the level we have seen, I cannot pretend sovereign debt problems have been solved or that the outlook is rosy.

Probably the best we can hope for is a mid-cycle slowdown, a natural development for this point in the economic cycle. Many fund managers I have spoken to support this theory as opposed to a return to out-and-out recession. The problem is that the GDP growth rebound has been muted despite unprecedented stimulus. It is not the rapid recovery many were hoping for, and reducing the level of borrowing through austerity measures, while necessary to restore confidence, is adding to fears we will slip back into recession.

This is the type of environment we will see for some time in the West, and Ben Bernanke's pledge to keep interest rates low for at least two years is evidence of the level of concern. So how do investors respond? If it is keeping you awake at night the answer is probably to keep most of your money in cash, even if low rates persist. If you want more income, you have to take more risk – there is no getting around it. For all investors, portfolios need to be constructed more carefully than ever. Too many want a high-octane portfolio when the market is going up and a cautious one when it is going down. This is never achievable because of the impossibility of market timing, especially in an economic climate of extreme uncertainty. Instead, I would look to blend defensive and aggressive funds according to your level of risk.

First let's look at the notable opportunities that have arisen from market falls. If you believe a full-blown recession will be avoided, oil exploration companies look very cheap and priced to reflect oil at $60 a barrel rather than the current value of around $100. Many small exploration and production companies have fallen 35 per cent to 70 per cent during the turmoil and an investment in Junior Oils Trust, a portfolio concentrating on profitable small producers, is a fund to consider. I am also a strong believer in gold and BlackRock's Gold & General Fund. In the short term physical gold looks a little overbought, but gold mining shares, like oil shares, look cheap relative to the physical commodity. Investors could also consider a broader equity fund, and for those who want aggressive exposure to the UK market, Standard Life's UK Equity Unconstrained, which favours more economically-sensitive areas such as industrials and mining, is an obvious choice. For investors seeking a defensive approach, absolute return funds could be used. Philip Gibb's Jupiter Absolute Return Fund has actually risen modestly during the crisis and remains a good diversifier for a portfolio. Troy Trojan, Miton Strategic Portfolio and Jupiter Strategic Bond could all be considered too. In addition large, international blue chips look cheap and I would suggest Lindsell Train Global Equity, which is full of quality companies with strong brands.

Finally, I do think income will play a much greater role in an investor's total return in the next few years, and recent falls in the market should highlight the attractions of UK equity income funds such as Neil Woodford's Invesco Perpetual Income and Bill Mott's PSigma Income. For more international exposure, the Newton Global Higher Income fund is a sensible option.

The market is likely to stay volatile for a while. It is a time to make sure your portfolio can ride out the storm and remember no single fund necessarily has the answer.

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

Sport
Alexis Sanchez has completed a £35m move to Arsenal, the club have confirmed
sportGunners complete £35m signing of Barcelona forward
Voices
Poor teachers should be fearful of not getting pay rises or losing their job if they fail to perform, Steve Fairclough, headteacher of Abbotsholme School, suggested
voicesChris Sloggett explains why it has become an impossible career path
Sport
world cup 2014
Sport
Ray Whelan was arrested earlier this week
PROMOTED VIDEO
Arts and Entertainment
In a minor key: Keira Knightley in the lightweight 'Begin Again'
film
Arts and Entertainment
Celebrated children’s author Allan Ahlberg, best known for Each Peach Pear Plum
books
News
peopleIndian actress known as the 'Grand Old Lady of Bollywood' was 102
News
Wayne’s estate faces a claim for alleged copyright breaches
newsJohn Wayne's heirs duke it out with university over use of the late film star's nickname
Life and Style
It beggars belief: the homeless and hungry are weary, tortured, ghosts of people – with bodies contorted by imperceptible pain
lifeRough sleepers exist in every city. Hear the stories of those whose luck has run out
News
Mick Jagger performing at Glastonbury
people
Life and Style
fashionJ Crew introduces triple zero size to meet the Asia market demand
Sport
Santi Cazorla, Mikel Arteta and Mathieu Flamini of Arsenal launch the new Puma Arsenal kits at the Puma Store on Carnaby Street
sportMassive deal worth £150m over the next five years
Arts and Entertainment
Welsh opera singer Katherine Jenkins
musicHolyrood MPs 'staggered' at lack of Scottish artists performing
Life and Style
beautyBelgian fan lands L'Oreal campaign after being spotted at World Cup
Arts and Entertainment
Currently there is nothing to prevent all-male or all-female couples from competing against mixed sex partners at any of the country’s ballroom dancing events
Potential ban on same-sex partners in ballroom dancing competitions amounts to 'illegal discrimination'
News
business
Finacial products from our partners
Property search
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

    Business Analyst Consultant (Financial Services)

    £60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

    Systems Administrator - Linux / Unix / Windows / TCP/IP / SAN

    £60000 per annum: Harrington Starr: A leading provider in investment managemen...

    AVS, JVS Openlink Endur Developer

    £600 - £700 per day: Harrington Starr: AVS, JVS Openlink Endur Developer JVS, ...

    Technical Support Analyst (C++, Windows, Linux, Perl, Graduate)

    £30000 per annum: Harrington Starr: A global leader in trading platforms and e...

    Day In a Page

    A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

    A History of the First World War in 100 Moments

    Peace without magnanimity - the summit in a railway siding that ended the fighting
    Scottish independence: How the Commonwealth Games could swing the vote

    Scottish independence: How the Commonwealth Games could swing the vote

    In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
    Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

    A writer spends a night on the streets

    Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
    Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

    UK's railways are entering a new golden age

    New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
    Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

    Conchita becomes a 'bride' on Paris catwalk

    Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
    Pétanque World Championship in Marseilles hit by

    Pétanque 'world cup' hit by death threats

    This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
    Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

    Why did we stop eating whelks?

    Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
    10 best women's sunglasses

    In the shade: 10 best women's sunglasses

    From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
    Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

    World Cup final: Messi? Mascherano is key for Argentina...

    No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
    Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

    Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

    18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
    The true Gaza back-story that the Israelis aren’t telling this week

    The true Gaza back-story that the Israelis aren’t telling this week

    A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
    A History of the First World War in 100 Moments: The German people demand an end to the fighting

    A History of the First World War in 100 Moments

    The German people demand an end to the fighting
    New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

    New play reveals what Oscar Wilde said at trials

    For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
    Can scientists save the world's sea life from

    Can scientists save our sea life?

    By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
    Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

    Richard III review

    Martin Freeman’s psychotic monarch is big on mockery but wanting in malice