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It’s time to recession-proof your investments

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

Wednesday 2 October 2019 was a bad day for global markets. Here, the FTSE 100 index of leading shares suffered its worst day since January 2016, dropping 3.2%. But we weren’t alone, markets in Japan, France and Germany ended the day more than 2% down, while the US Dow Jones closed more than 1% lower for the second day in succession.

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Today UK stocks are still sliding, with the general sense that we’re already in a global economic downturn compounded by news that it does indeed look like we have slipped into recession in the UK.

Things on the high street have been telling us something’s not right for a long time now. But this week’s data adds hard fact to the general sense of ease and it’s weighing heavily on markets.

Yesterday’s construction industry data showed activity has continued to slow - for a fifth consecutive month. The construction purchasing managers’ index, run by IHS Markit/CIPS UK, dropped to 43.3 from 45 last month, blamed squarely on Brexit uncertainty and the resulting weak demand. A reading below 50 means more of the executives surveyed said their activity was contracting than expanding. Economists had expected the indicator to remain stable. The manufacturing sector turned in a similar downturn. Factory activity hit 48.3 last month, which, while a four-month high, was still below the 50 level that denotes flat growth, and Brexit stockpiling was largely responsible for the rise in purchasing.

Today the picture gets worse, as we find out the all-important services sector has also fallen. The September services PMI tumbled to a six-month low of 49.5, again below the 50 level that draws the line between growth and contraction.

Combined with the even weaker manufacturing and construction surveys earlier in the week, September's all-sector PMI sank to 48.8 from 49.7, its lowest since the month after the referendum decision to leave the EU in June 2016, and before that 2009.

So, with recession likely to be under-way, how do you protect your portfolio as an investor?

The first thing to remember is that recessions are a fact of life. The second is that the bigger picture - your life plans, financial goals and investment triggers - are unlikely to have changed as a direct result of that, so you still need to stay on track.

Resist the sense of panic, and along with it the urge to bale out or pull the plug. As history shows, entering and exiting the market with any level of sustained success is difficult; staying invested and riding out the ups and downs is a far better path to take.

That’s not to say a little more caution may not be needed. Now is probably not the time to up the ante and bet it all on a high-risk ‘blue sky’ punt.

When recession hits, companies slow down their business investments, consumers rein in their spending, and generally, investing in solid companies with a good track record is a better bet. As Thomas Cook has demonstrated, longevity isn’t a single guarantee of success. However, companies that supply, make or provide consumer staples are usually a good choice. Recession tends to make businesses and consumers shy away from non-essential purchases or investments.

It’s especially at times like this too, that an experienced fund manager can add value; closely watching the markets and - you can bet your bottom dollar - doing all they can to continue to invest in the right way for people who invest in their fund.

Our Select 50 list of preferred funds offers a wide range of investments from across the globe and across a broad range of sectors, giving you the scope to stay invested, and remain on track - whatever else is happening elsewhere.

More on the Select 50

Five year performance

(%)
As at 2 Oct
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019
FTSE 100 -1.4 17.0 12.2 4.6 -0.3
Nikkei 225 9.2 27.8 9.0 20.6 0.2
DAX 30 3.9 10.0 22.8 -4.8 -3.0
CAC 40 5.1 -0.2 20.3 2.2 -0.8
Dow Jones 5.6 30.4 19.9 18.8 5.0

Past performance is not a reliable indicator of future returns

Source: Refinitiv, as at 2.10.19, in local currency terms with income reinvested 

Important information The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy or sell a fund. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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Be prepared

Market volatility can feel like an investor's worst nightmare. But if you take a few simple steps to prepare, you can keep a calm head when it arrives.

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