Defensive investing strategies for retail investors
In periods of turbulence in the financial markets, there are still ways for the investor to make good returns and protect their assets.
A defensive investment strategy is a conservative method of portfolio allocation and management, working against broader market sentiment. Although traditionally aimed at minimising the risk of losing capital, we believe certain innovative choices also offer greater benefit.
At Seismic we are out seeking uncorrelated investments which allow our investors to benefit despite economic instability.
Correlated investments are investments which are linked to the market such as listed shares on the stock exchange. Many pension and hedge funds are heavily correlated to either the debt or equity markets. One issue with such investments is that making a return in a bear market is not for the faint hearted.
Uncorrelated investments rely on some other factor to drive the returns profile. Increasing a portfolio’s exposure to an uncorrelated asset class can be an effective defensive strategy. Because these investments don’t rely on the upward momentum of the markets, they will post gains in market conditions where stocks and bonds struggle.
Gold, which of course produces no income, is probably the best known defensive asset. Over the years it has earned the name ‘safe haven asset’ because it is uncorrelated to bonds and equities. Gold remains a valuable reserve asset amongst the worlds’s banking fraternity, commodity traders and sophisticated investors.
Property and land values have often dipped at times of economic uncertainty. However, Brexit has led to a surge in the value and development of industrial and storage facilities. Scarcity of existing assets and relatively short development periods has refocussed property investment away from residential and office space. As trends towards online shopping increase, a sustained, long-term demand for logistics and warehousing in the UK is produced .
Unlisted shares and tax efficient investing
Early stage investing brings its own well detailed risks, but the associated uniquely generous tax reliefs has made the UK a powerhouse of entrepreneurial spirit. Tax releifs offer both downside protection for financial risk as well as up to 64% upfront cash rebates from personal tax bills. VCT, SEIS, EIS and IHT programmes have enabled UK growth businesses to flourish as they solve real world problems free from market sentiment. Wrap the investment up in your SIPP and both the income and capital gains are tax fee. Win – win.
Litigation funding is an excellent example of a new breed of uncorrelated investmenst. The worse the economy fares, the greater the incentive for corporates and individuals to get involved in litigation. Whereas the majority of litigation funding has concentrated on larger cases with unpredictable, high potential payouts, Seismic’s Disburse Fund targets a high volume of smaller civil litigation cases. Because the win rates and values are predictable, and the capital and returns are underwritten by insurance, the returns are unrelated to the market. Civil litigation funding is backfilling the £1bn cut to the legal aid bill of the last 5 years.
Seismic offers opportunities in three of these alternative investment asset classes. For more details on Seismic’s uncorrelated investment opportunities, please see www.seismic.vc