You never think about the benefits of a diversified portfolio until something goes wrong. Quite a few things have been going wrong lately, as I'm sure I have no need to remind readers. If nothing else, the credit crunch episode ought to remind us that every portfolio needs a few hedges against the bulk of a fund's exposure. That way, you at least have some possibility of protection against the vagaries of the markets.
Gold was one traditional strategic weapon. According to the folklore, you always ought to have about 5 per cent of your investments in plain gold: a few gold coins, that is, rather than only shares in gold companies. When equities suffer or inflation builds, or political tensions intensify all three, gold usually sees a surge, as it has in recent weeks. Unfortunately, I never got round to putting enough geld into my personal fund, and it's looking a little dear at the moment, so I'm inclined to let that one slide
However, I also happen to think that the average small Western punter needs to ensure that they have some sort of geographical "hedge". This I have managed to sort out, via the JP Morgan Indian Investment Trust.
I've written about this collective fund a few times now, so I apologise for any repetition. But it's been such a great source of comfort lately that I feel that I have to remind you of its existence. There are one or two other passages into India, such as the New India Investment Trust, run by Aberdeen Asset Management, so I'm not saying that the JP Morgan one is the best. What I am keen to reflect upon is just what a stupendous, though sometimes erratic, performer the shares have been, and how they continue to be so in these troubled times.
As usual with any investment, the trick is to get your timing right. The key to that is to forget about timing, mostly, and commit yourself to a monthly investment plan, so that you miss any great crashes and, over time, reap the rewards of "pound cost averaging" and the general appreciation in share prices.
That, I believe, is why my involvement in the JP Morgan Indian Investment Trust has proved so rewarding: the more volatile the share price, the greater the advantages of a "drop feed" approach to buying the shares. Whenever a big scare has come out of Mumbai, or Asia more widely, the shares usually take one hell of a pasting – yet my investment keeps rolling in. So while the nominal worth of the holding is falling, for the future I will be taking advantage of the temporary depression in demand for the shares.
By the way, if you don't think this works, that must be because you think the shares are going to underperform permanently, in which case you shouldn't be investing in them at all.
A look at the performance over the past few years shows how volatile they can be: they are up 25.4 per cent on last year; up 68.6 per cent on 2005; up 19.1 per cent on 2004; up 111.3 per cent on 2003, but still 6.5 per cent down on 2002.
Thus, if you had, say, put some huge lump sum into the shares in 2002, you'd still be down on the deal – despite their phenomenal growth in more recent times. If you'd only invested in 2003, you would have enjoyed much superior returns. Yet, who would possibly have had the skill and judgement to invest in this trust in 2003 – and 2003 only?
Going further back, I can recall buying the shares at about 50p each or so; they now trade at well over the 300p mark. Next week they could collapse again, but I wouldn't alter my long-term approach to the stock and it s prospects.
By the way, I might soon start to look at putting some cash into China as well. I chose India above China because of the attraction of investing in a more democratic regime, and one whose economy was more focused on higher value-added services than the trudgy, tough business of mass manufacturing. So even though Chinese stock markets are notoriously overpriced and have all the symptoms of a bubble, now is as good time as any to start a modest monthly investment.
However, my research hasn't extended to picking one particular trust out of the variety on offer. Whatever I do, though, I will carry on putting a few pounds a month into the growth story that is India. The credit crunch is less severe over there.Reuse content