Interactive Investor

Stick or twist? interactive investor's 2019 tips for investors

12th December 2018 10:45

Jemma Jackson from interactive investor

With volatile stockmarkets causing confusion among even old hands, Jemma Jackson asks interactive investor's experts for their pearls of wisdom as the new year approaches. 

With stockmarket volatility returning to vogue around the world this year and UK politics in crisis, many investors won't know whether to stick – keep calm and ignore the noise, or twist – take action.

interactive investor shares some thoughts on what investors might consider as we head into 2019.

UK – paid to be patient?

Richard Hunter, Head of Markets, interactive investor, says: 

"Overseas institutional investors have been giving the UK a wide berth, with Brexit concerns weighing heavy, let alone the possibility of a Labour win if a general election is called. The relentless surge of pessimism could persist during 2019 as the full ramifications of Brexit become a little clearer. Yet in the meantime, the average dividend yield of the FTSE 100 is at present 4.5%, a clear invitation to income seeking investors who are being paid to wait for any recovery.

"There are any number of world-class quality companies in the UK, some of whom are largely immune from Brexit uncertainties and/or are defensive by nature. For example, the Consumer Staples sector, which accounts for some 16% of the FTSE 100 by value, contains the likes of British American Tobacco, Diageo, Unilever and the supermarkets.

"A small change in sentiment towards the UK market could begin a domino effect, such that the FTSE 100 could well transform from an investment frog to a prince in 2019, given even the smallest of nudges."

Increased volatility – time to get active? And hold out for a dividend hero?

What can investors do to protect themselves against stockmarket volatility and potentially benefit?

Rebecca O'Keeffe, Head of Investment, interactive investor, says:

"Steady rising markets benefit passive investors, but more volatility is better for unconstrained active managers, who are able to choose which global markets and sectors they believe offer best value, versus having to buy the whole market. Passive investors may want to look at whether there are attractive active options that could deliver better returns despite the higher costs.

"Core global funds we like include Fundsmith Equity and Fidelity Global Dividend. In the investment trust world, there could be something to be said for holding out for a dividend hero during uncertain times. F&C Investment Trust has been able to raise its dividend each year for an impressive 47 years, whatever the weather."

Keep calm and remember it's time, not timing

Moira O'Neill, Head of Personal Finance, interactive investor says:

"Whilst the worst thing we can do during times of market uncertainty is panic, that doesn't mean you can't be proactive with your investments. Utilising your annual tax allowances if you are in the fortunate position to be able to do so can stand you in good stead for the long-term. And make sure that you're using your spouse's allowances too.

"Review your investments to make sure that you're keeping the fees down as much as possible – in volatile times, controlling costs can be comforting.

"Above all, take a long-term view. Most of us are investing for longer than we think. Even if you're starting investing in retirement, you're likely to have a timescale of 20-plus years. 

"Remember that missing the 10 best days of the stockmarket (measured by FTSE All Share) would have reduced your return from 6.3% to 2.8% per year over the last two decades between 1998 and 2017*. In other words, it is time in the market, not timing, that can produce the best long-term returns. 

"Nervous investors might prefer to drip feed their money into the markets on a monthly basis, which can help smooth out some of the highs and lows in the price of shares. You can also contribute money to an ISA or SIPP and take advantage of your annual allowances without having to commit the whole sum to markets immediately – you can drip feed it in over a period of time."

Currency Movements – to hedge or not to hedge?

Sterling has had a volatile ride since the UK referendum in 2016. But investors don’t have to be completely at the mercy of the vagaries of currency movements.

Rebecca O'Keeffe, Head of Investment at interactive Investor, says:

"Investors who hold individual equities are probably all too aware of the inverse relationship between the strength of the pound and the sterling valuation of many of the larger UK-listed international companies. 

"Direct equity investors probably factor this into their thinking when it comes to their investment strategy, but fund investors may also want to be mindful of sterling volatility. Investors who are happy to take exposure to other currencies can buy the standard version of a fund, but investors who want to avoid exposure to the effect of any currency move might like to consider a ‘hedged’ alternative instead. 

"Given that currency moves are typically negatively correlated with the performance of the underlying equities, buying a 'hedged' fund will generally add risk to your portfolio, but if your view on the currency is correct, the additional returns can be significant."

Pay close attention to the risks you are taking

Rebecca O'Keeffe continued:

"The majority of the most popular funds and trusts on the interactive investor platform in November have two things in common. The first is that they have been overweight the US markets over the past 3-5 years. The second is that they have been overweight technology. Holding multiple funds and trusts may not give you as much diversification as you think.

"So, it is worth doing your homework to make sure your 'core' holdings don't overlap too much, otherwise you might find that your portfolio is more concentrated than you had planned."

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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