Analysts who work for big banks tend to be known for pushing a relentlessly bullish view of the world. So a recent report from Andrew Roberts at RBS has unsurprisingly generated plenty of coverage for its unusually bleak forecasts for the coming year.
"Sell everything except high-quality bonds," it says. Current market conditions "look similar to 2008. We dust off our old mantra: this is about return of capital', not return on capital'." Roberts goes on to predict severe problems for corporate bonds and emerging markets, plus a fall of up to 20% in developed-market stocks, and urges investors to get out ahead of the rush: "In a crowded hall, exit doors are small." Overall, successful investing in 2016 "will be as much about limiting losses as making gains".
This kind of report makes good headlines, but whether it's sound advice is another matter. Sentiment among investors has certainly turned bearish: the FTSE 100 has had its worst beginning to the year since 2000, down more than 5% in the first few weeks of 2016, while US stocks have made their poorest start ever. Oil prices have plummeted and nerves over the outlook for the Chinese economy and markets have only added to tension.
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Still, MoneyWeek thinks that on at least some of these issues such as the situation in China markets are panicking more than they should. Anxious analysts predicting that the sky will fall is, frankly, yet another symptom of this discomfort, rather than the profound insight it tends to be presented as in the media. For long-term investors, churning your entire portfolio on the back of forecasts either bullish or bearish is more likely to make your broker rich than benefit you.
That said, if you're cautious about the outlook, you may want to consider what kind of investments are likely to hold up best in a down market. There are just five funds in the UK that produced a positive return "in both 2008, when Lehman Brothers collapsed, and then 2011, when the European sovereign debt crisis sent global stockmarkets tumbling", saysKyle Caldwell in The Daily Telegraph. One was Miton Cautious Multi Asset, run by Martin Gray who has since set up his own firm, Coram Asset Management.
And as it happens, Gray is also pretty bearish, he tells Caldwell though not by choice. "I want to be more positive, but I cannot help feel bearish. There is no value anywhere, in neither the equity or bond markets." As a result, he has 30% of his fund in cash, while he's also tipping long-dated government bonds and gold to hold up in a crisis. "Now is the time to protect your investment capital. Money can be made at a later stage," he adds.
Other funds that did well during both crises were Ruffer Total Return and Troy Trojan. These are funds that focus on wealth preservation limiting losses in down markets as much as making big gains (the other two outperformers were L&G Global Health & Pharmaceutical index, and Schroder Global Healthcare, both of which were driven by the booming healthcare sector rather than by a deliberate effort to avoid market shocks).
Both Ruffer Total Return and Troy Trojan keep a large part of their portfolios in gold and cash (to help protect against downturns) as well as inflation-linked bonds (as a hedgeagainst the eventual return of inflation). We think either of them could make a good conservative addition to aportfolio, as could Personal Assets Trust (LSE: PNL), which is an investment trust run by the same managers as Troy Trojan and employs a similar strategy.
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