4th July 2012
Perhaps they already have, with news of the largest sell-off of in equities for five years. According to Capita Registrars, private investors sold £1bn worth of shares between March and May, as the optimism of early 2012 fades to a distant memory.
There certainly seems little reason for cheer. Europe remains unfinished business, and while it appeared that trust in the UK's high street banks couldn't fall further, news breaks that Bob Diamond has resigned after the rate-rigging scandal.
But is the pursuit of profit still worthwhile on home soil?
According to asset managers Schroders, the patriotic bubble has well and truly popped – despite the Diamond Jubilee and Wimbledon.
Almost nine in ten UK investors expect various financial issues to cause them concern over the next year. Their biggest worry is the impact of inflation with more than one in four investors also concerned about how they will cope with the prospect of rising taxes and austerity measures, according to the Schroders European Wealth Index.
But what might boost the market?
As the bad news keeps on rolling, there is the prospect of yet more QE.
If the Bank of England decides to pump another slug of monetary stimulus into the economy, the markets will respond accordingly. The good news is that, at least in the short-term, the market reaction is likely to be positive. The previous injections into the economy have certainly proved so – even if long-term it is not the solution for embattled investors.
Which stocks will help?
Whichever way you decide to broaden the scope of a portfolio, one particular investment strategy which has been in vogue over recent years and will likely remain that way until there is further clarity in equity markets is investing in the shares of defensive companies – and the UK has plenty.
A defensive company is one whose sales and earnings remain relatively stable during both economic upturns and downturns. Take, for example, British American Tobacco. Its shares demonstrate low levels of volatility when compared to the market.
And Darius McDermott, managing director at Chelsea Financial Services and Mindful Money blogger, adds: "The larger UK blue chip companies are more mature businesses, with the cashflow that allows them to pay out dividends.
"Compared to the low income environment elsewhere, they can pay dividends of 3, 4 or even 5 % a year."
If you consider some of the stalwart stocks in your portfolio, the benefit of those from the UK is their defensive, global, dividend-paying nature – so as the economy deteriorates, they remain firm. After all, a large proportion of companies operate in areas where spending is non-discretionary, such as utilities, food and healthcare.
The UK market has started to outperform global equities in recent weeks, and downgrades have been smaller than in the rest of Europe and the US.
And consider the valuations…
It's vital to consider the amount you pay for UK shares, as this will determine your future returns. And the good news is that the UK market remains relatively cheap, and robust dividends, so you stand yourself in good stead if you pick the right companies.
However, UK Value Investor John Kingham argues on a Mindful Money blog: "To get a really cheap market (consider) 2009, when the market hit 3,500 for a second time.
"But by this time the market had grown, due to inflation, population growth and the general forward march of capitalism, so that in 2009, the FTSE 100 at 3,500 gave a CAPE valuation of around 9. Finally then, we had a market that was, very likely, cheap by any reasonable measure. And the returns from 2009 have born that out.
"The problem here is that waiting for a bear market can be a very long and boring game, requiring the patience of Job. In fact, I think it's likely that there wasn't an attractively valued FTSE 100 from between 1983 and 2009."
But even so, there are always attractive valuations to be found – just do some digging.
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