Detailed investment research does not always result in thrilling outperformance. While investors often want to see stellar returns, work needs to be done to ensure portfolios have their fair share of unexciting – yet important – long-term holdings, especially when markets are jumpy.
The balance will be different for all investors, but to help those that are struggling to find solid options, here are three ideas to consider in the face of uncertainty.
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Scottish Mortgage Investment Trust
In times of market stress, some investors prefer to hold investment vehicles dedicated to a long-term view regardless of short-term market volatility. This has made investment trusts popular as their close-ended nature means only a fixed number of shares will ever be in issue and they are often held over many years. Therefore, a well-run investment trust with good performance can be attractive to investors on the hunt for durable holdings.
With durability in mind is the Scottish Mortgage Investment Trust, which has been around for over 100 years. Launched in 1909, this £15bn investment trust has survived two world wars, numerous recessions and – now, it seems – a global pandemic. Over 12 months it has returned 95.68% and during the summer was actually able to pay a dividend of 1.86p.
This investment trust, managed by Baillie Gifford, predominantly invests in equities and has been able to weather the storm of 2020 by virtue of its long-term holdings in the likes of Tesla, Amazon and Netflix. Tech stocks have experienced a particularly strong rally this year, allowing the Scottish Mortgage Investment Trust to record good performance. However, the trust’s managers champion diversification and have access to potential growth stories in Asia (through Tencent and Alibaba) and investments in healthcare and biotechnology.
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Silver
Another strategy can be to hold onto defensive assets such as commodities that preserve value. This is one of the reasons gold has found its way back into so many portfolios in 2020. However, the yellow metal is not the only precious option open to investors…
Silver is a defensive asset that preserves value but moves around a lot more than gold. The high price of gold (which has stayed well above $1000 an ounce for the past decade) may also put some investors off, whereas silver offers a more accessible entry point. This seems to have been noticed in 2020, helping the value of silver shoot up by 156% during the pandemic, while gold prices ‘only’ rose by 40%. This means while silver was trading at $11.6 per troy ounce in March, the same amount would set back investors $29.80 by the time August came around.
Although the price of silver can fall as likely as it can rise, the flexibility of this metal’s movement means it potentially offers greater upside to investors and could help them benefit from the market’s wider flight to safety.
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US Dollar
In times of uncertainty, investors will naturally look for something to ground their portfolios. This can mean spurning start-up companies to invest in blue chip names or allocating to developed countries over less-tested emerging markets. The same is true of currencies and throughout 2020 investors have been flocking to the US dollar, arguably the world’s currency of choice.
Tied to the largest and most powerful economy, the US dollar has been keenly watched by traders as 2020’s crisis has unfolded. And though the currency has experienced a slide of around 6% during the crisis, many experts are unfazed. Ironically, this slide could lead to more demand as, historically, weaknesses in the US dollar have been viewed as buying opportunities from investors.
In fact, throughout the crisis investors have still wanted to hold onto the dollar as their risk averse currency of choice. Importantly, the dollar faces few rivals. It is still predominantly used for cross-border payments and, according to the IMF, accounted for 60% of all known central bank foreign exchange reserves as of 2019.
At the same time, the continued rally of US stocks – driven by the giants of Apple and Amazon – means there is still a definite demand from international investors to buy into this market. Though the FX market can be volatile, the haven-like resilience being shown by the US dollar should give some encouragement for currency-focused investors.
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