Where to find winners when markets are slumping and recession looms
The economic outlook may be bleak, but there are still plenty of opportunities for investors, says James Daley
Saturday 30 August 2008
The UK economy is teetering dangerously on the brink of recession. Last week, new figures showed that GDP growth came to a complete standstill in the second quarter, and most economists are now predicting a fall in the third quarter of the year. If it materialises, it will be the first period of negative growth in Britain for almost two decades.
Unsurprisingly, such gloomy economic conditions have taken their toll on the housing and stock markets too – with the FTSE 100 now down around 18 per cent since its recent peak last July, and house prices down around 10 per cent over a similar period. Many stocks – such as the banks and housebuilders – have seen much greater falls, as have properties in certain regions of the country, such as Northern Ireland.
But a consumer and housing market slowdown are not bad news for all companies. Defence companies, for example, tend to continue to see a steady stream of revenue, even when economic conditions are depressed. Furthermore, in today's global economy, there are plenty of British companies who are not dependent on a vibrant UK to remain profitable, as the majority of their revenues come from overseas.
Tim Steer, the manager of New Star Asset Management's UK Alpha fund, says these are the companies that he has been focusing on in recent months. "The FTSE All-Share is full of companies that grow regardless of how the UK economy is doing," he says. He points to oil services firms, such as Wood Group and Wellstream, which provide support and equipment for the booming oil industry, as well as engineering companies such as Weir Group and Cookson, which are profiting from major infrastructure projects abroad.
He adds that most of these companies are also benefiting from the recent higher dollar, which is increasing the value of their earnings. In the defence sector, he points to BAE Systems, VT Group and Chemring, noting that the war in Iraq and the "war on terror" continue to be lucrative for these businesses.
On a more domestic level, Steer says he also likes the bus and train companies, such as National Express, Stagecoach and First Group, which are benefiting from a shift away from car usage. "Video games are another good one," he says. "People are tending to stay at home more, and video games are actually realty good value. For the cost of a night out, you can get a game that you can play again and again. And more people are playing games, too – older people and women, for example." In this sector, he picks out Game Group.
When it comes to the banks, the house builders and most retailers, however, Steer shares with most other fund managers a fairly bearish short-term outlook. "You don't want to try to catch the falling knives at the moment," says Robin Geffen, the managing director and chief investment officer of Neptune Investment Management. "They've got further to fall."
Geffen has been interested in the pharmaceutical sector in recent months, and believes that companies such as GlaxoSmith-Kline and AstraZeneca could emerge as some of the best performers on the UK market this year. "The large pharmaceutical companies haven't gone down anything near as much as the rest of the market this year," he says. "These companies have got very strong yields – and drugs are not something that people cut back on" in a recession.
Geffen is also keen on the inter-dealer brokers such as ICAP and Tullett Prebon, which have seen a surge in trading in the volatile conditions of the past year, and have been one of the few direct beneficiaries of the choppy markets.
Buying a small handful of equities directly is a risky game for the unsophisticated investor. There are a number of professional funds that aim to make the most of a forthcoming recovery in markets. Alan Adam, a consultant at the financial advisers Alan Steel Asset Management, says that, in the UK, he believes equity-income funds, which tend to be value-focused, present some of the best opportunities for playing the recovery. He points to funds such as the Psigma Income fund, run by Bill Mott, which has started to take some exposure to the banking sector, and the Jupiter Income fund, managed by Tony Nutt, who has one of the best track records in the UK fund management industry.
Investors looking for a recovery play may also want to take a look across the Atlantic, Adam says. "The States is further down the road to recovery than the UK. The UK is also probably going to reduce interest rates over the next few months, which will further weaken the pound, so you might get a double-whammy from investing in the US."
UK-based funds that invest in the US have been hampered by a weakening dollar over the past few years. But the greenback has actually strengthened against the pound recently, moving from more than $2 to $1.83 against £1 over the past week. If the trend continues, it will help returns in UK-based American funds. Adam recommends Martin Currie's North American fund and Resolution's American Growth fund. For investors prepared to take on more risk, he recommends Neptune US Opportunities. He warns, however, that investors should take at least a four- to six-year view, acknowledging there may be more difficult times ahead before things improve.
Unless you're an experienced investor, it is best to seek professional financial advice before you invest.
To find an independent financial adviser in your area visit www.unbiased.co.uk.
- 1 The truth about 'girl things': Three cheers for Heather Watson's honesty
- 2 Man who held up 'hire me' sign at Waterloo station returns a year later with 'I'm hiring' sign
- 5 Men behaving badly: Urinating while standing, 'manspreading' and the gendering of selfishness
Nigel Farage: NHS might have to be replaced by private health insurance
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
British Muslim school children suffering a backlash of abuse following Paris attacks
George Galloway condemns 'racist, Islamophobic, hypocritical rag' Charlie Hebdo at freedom of speech rally
Islamic history is full of free thinkers - but recent attempts to suppress critical thought are verging on the absurd
iJobs Money & Business
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...
£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...
£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...
£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
Day In a Page
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 deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
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
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village