Is it time to buy? Are we at or near the point of maximum fear in global stockmarkets? It’s impossible to say (although the bottom will seem so obvious in hindsight). And we must never forget that markets are perfectly capable of remaining irrational for much longer than any of us can stay solvent.
What we can say, however, is that right now an awful lot of assets are beginning to look very cheap indeed. You can hear more about this on this week’s podcast (it is here).
But if you are beginning to think about buying it is worth focusing on the investment trust sector for the simple reason that if you buy carefully you aren’t just getting bombed out stocks, you are getting them at a discount to their net asset value too (Max explains this in more detail here for those of you new to the sector).
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Most investment companies have fallen along with the wider market (bar a few such as BH Macro which aim to benefit from rises in volatility). The big defensive trusts – which aim to protect your capital – have held up pretty well too. Think Ruffer, Capital Gearing and Personal Assets. (which I hold).
The worst hit were (obviously) anything to do with energy markets and Russia (JPMorgan Russian, which I hold, was down 11.6% yesterday). Smaller company trusts also did pretty badly. So where should you look?
If you think things aren’t as bad as they look and you suspect there was no tech bubble in the US in the first place (we aren’t 100% with you on this one), now is the time to top up holdings in anything long term growth orientated – so pretty much anything run by Baillie Gifford (I sit on the board of of the trusts they are contracted to manage – the Baillie Gifford Shin Nippon).
A lot of Moneyweek readers will be holding Scottish Mortgage in their investment trust portfolios. A few months ago we begged you do rebalance given its massive outperformance so that you were not over exposed to US growth stocks. Fingers crossed you did. If you did not, you might want to use today’s bounce to think about it!
Otherwise the bullish might add some of the smaller-cap trusts to watch lists – we can expect pretty intense government action to support the corporate sector (helicopter money is definitely coming…), so should the likes of say River & Mercantile UK Micro Cap really be down 20% or so this year and trading on a 25% discount to its net asset value?
Finally there are the defensive trusts. Most readers will hold RIT Capital but Numis suggests Capital Gearing and Aberdeen Diversified Income and Growth as good options. They also like Troy Income and Growth for its “defensive tilt,” as do we.
But the key thing right now is to have an eye to valuations. We have been telling you for some time that if you buy, you must buy cheap stocks for the long term. No change there! You can look at the last update to the investment trust portfolio here (we will be updating it in the near future, too).
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