Investing in times of turbulence: These stocks and funds can help

The ceiling of the handsome 3 Centenary Square building in central Birmingham is decorated with the mottos: ‘Thrift radiates happiness’ and ‘Saving is the mother of riches’.

These were the source of wry comments among those at Conservative Party conferences in this former bank, with some commenting on the unfortunate impact of the mini-budget on their portfolios. The reverberation of this ‘tax event’ has made investors uneasy.

But experts argue that this disruption should be the impetus for a portfolio realignment to ensure exposure to a wide variety of assets against a potentially even more challenging period ahead.

Your instinct may be to hide in cash despite the negative real returns. But if you can take a longer-term view, “It’s time to get creative,” as Fund Caliber’s Darius McDermott puts it.

While a cash buffer is important in an era of volatility, now can be the time to tie money into the markets. David Coombs of Rathbones says: ‘You have to invest in turbulent times.’

Fears of higher interest rates have hit the prices of gilt-edged government stocks and corporate bonds, boosting their yields. This presents an opportunity for those who want to improve their income and can afford to be optimistic about further price falls.

Coombs took advantage of these terms to buy gilts and buy NatWest corporate bonds, which yield 7 percent. Other experts have also picked up on gilts, describing the yields as “too good to overlook.”

Bonds are part of the Rathbone Strategic Growth Portfolio fund, one of the funds that Coombs manages. The other assets include commodities, emerging market debt, real estate, mutual funds and stocks, including a recent addition, Apple.

US technology stocks may have fallen out of fashion due to rising inflation and interest rates. But Coombs argues that Apple, whose stock has fallen more than 20 percent this year, has become more of a luxury goods group than an innovator. Getting creative implies a willingness to change your preconceptions.

Diversification is key at the moment. Likewise, make sure you place your bets on leading companies, such as beverage giant Diageo, retailer Next and Tesco, who said this week it would stick to its full-year profit forecast (albeit on the downside), although it the public is becoming more cost-conscious.

Coombs says, “Dominant players tend to be more resilient in a recession and tend to outperform when the recovery kicks in because their competitors may have gone to the wall.”

Alec Cutler, manager of the Orbis Global Balanced Fund, also emphasizes that portfolios need a solid foundation so that they are diversified across asset classes, currencies and geographies.

As part of this spread, he puts money into US government indexed bonds (Treasury Inflation-Protected Securities, also known as TIPS) and defense. The conflict in Ukraine continues and China is also increasing its spending on armaments amid mounting tensions in its region.

Cutler is also targeting the energy infrastructure sector, given the huge expenditures that will be required for electrification – switching from technologies that run on fossil fuels to electricity produced from renewable energy sources.

Shell is the world leader in this field. Kinder Morgan, who manages half of America’s gas pipelines and thus earns billions in insured revenue, is another big name.

Not so long ago, balanced funds based on a 60/40 split between bonds and stocks were considered the easiest way to balance, since when stock prices plummeted, bonds thrived and vice versa.

But this model, which proved effective between the 1980s and 2021, appears to have been broken thanks to interest rate hikes, inflation and geopolitical turmoil.

Again, this changing order forces you to be more creative, check the contents of your money and see options. The Ruffer Investment Company (in which I am an investor) owns TIPS and energy stocks, although stocks currently make up only 16 percent of its portfolio.

If you want a larger share, Bestinvest also rates the Personal Assets trust as a best-buy multi-asset fund.

Jason Hollands of Bestinvest comments: “Personal Assets, which focuses on capital preservation and returns, is very conservatively positioned, with 31 percent in equities, 37 percent in index-linked bonds, 15 percent in UK government bonds, 11 percent cents in gold and 6 percent in cash.’

McDermott cites the Jupiter Merlin Balanced Portfolio fund that aims to be defensive and achieve growth while paying an income. If income is a priority, he suggests the CT MM Navigator Distribution Fund, which invests in 25 to 35 funds and trusts.

Ben Yearsley of Shore Financial Planning says three funds – Axa Global Strategic Bond, M&G Emerging Markets Bond and Premier Miton Corporate Bond – should provide exposure to bonds.

This approach may not radiate happiness, but it should help you achieve a sense of balance.