Non stock market correlated investments

31st Dec '19 by sssrpm

11 comments 749 reads

I am currently 1/2 in cash as I have sold my USA holdings due to high valuations there.

Currently, I am earning no return on the cash at all.

I could put it into a savings account with someone like https://www.flagstoneim.com/ and earn ~1.4%. Which is better than nothing I suppose.

I was also contemplating the Legal & General GILT tracker fund. However, I am not so sure how uncorrelated this is and if it would also have a large drop in the event of a stock market crash in the US or UK?

I don't need high returns, just looking for somewhere uncorrelated with the stock market I can invest the cash for now and have fast access to it once there is a crash and a buying opportunity.

Any thoughts and ideas appreciated!

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About the Author

Sssrpm

Premium Member

I've been a technology entrepreneur for the last 20 years or so. These days I now also spend a good deal of my time investing in public markets, property and angel investing.

11 comments

Rusty2

31st Dec '19

You could invest it in gold, if the market crashes gold will tend to go up but when will it crash, people have been expecting it for years, yes it will happen one day but you may lose more by not investing. I have looked at Gilts but the returns were very low if anything. You could also short the indexes but again you could well lose if the markets keep rising.

William K

31st Dec '19

There are two funds I use for this purpose.

CG Absolute Return Income GBP Class M

Royal London Sterling Extra Yield Bond Class Y Income

They return around 6% per annum over 5 year periods and have relatively low volatility compared with equity funds. If purchased through Hargreaves Lansdown the dealing costs are minimal. Whilst these funds offer low returns and low risks, they are not risk free you might incur losses if you have to sell in a hurry.

Note: the income is classed as interest and not dividend so it may be taxable if you keep these funds outside an ISA.

pka

1st Jan '20

I can second the recommendation of the CG Absolute Return fund. It has virtually the same investment porfolio as the Capital Gearing investment trust, which performed very well during past bear markets. If you click on the All button on the chart on Capital Gearing Trust's stock report below, you can view its long-term performance which has been better than that of the FTSE All Share Index:

https://www.stockopedia.com/share-prices/capital-gearing-trust-LON:CGT/

Macro

2nd Jan '20

If you look through the various Investment bank 2020 Outlook reports on asset allocation (JP Morgan, Blackrock, Fidelity etc) you will see their favourites forms of fixed income assets in 2020. A common trade theme seems to be Long Emerging Market Debt - on the basis that the US Fed has lowered US$ rates and in an election year will now hold the status quo - leading to US$ weakness. A suitable instrument might be the iShares EMB ETF traded on US markets.

Rusty2

2nd Jan '20

Is that the same as Capital Gearing Trust (LON:CGT), if so, I do have a small holding in that, I will have a look again at the Royal London one.

One concern with the Royal London is it does seem to follow the share markets, in 2008 it really did crash, also quite a fall back at end 2018.

timarr

2nd Jan '20

When markets really crash - and that hasn't happened since 2008 - then nearly everything correlates. The only thing with any history of outperformance is Managed Futures which isn't a proposition for most of us. AAA bonds and gold hold their value, usually, everything else goes down. Shares suffer most, particularly small cap:

https://www.visualcapitalist.c...

Broadly, when crises hit there's a rush for liquidity, partly to cover losses and partly for safety. Anything illiquid - e.g. small cap stocks - becomes unsaleable. Anything liquid gets sold off. Generally it's a fantastic time to be sitting in cash because the prices of even high quality stocks are battered by fear and uncertainty.

You've got to be brave to invest at these points - and willing to wait as well, as bear markets tend to ratchet down (the biggest single day rises in stockmarket history have occurred during bear markets). But that's part of the problem - no one buys today because everyone thinks prices will be lower tomorrow.

As an interest earning cash substitute I generally use short duration high yielding bonds - for instance:

https://www.stockopedia.com/et...

They'll suffer in a crash too, but the short duration to redemption offers some safety and the yield is vastly more attractive than cash, especially if held in a tax wrapper.

timarr

Rusty2

2nd Jan '20

I don't really agree, gold shot up in price from Sept 2006 until Sept. 2011, it more than trebled.

donald pond

2nd Jan '20

Look at Infrastructure and renewable energy funds would be my recommendation. There are at least a dozen listen companies in this space and you'll see from their track record that they tend to plod along delivering overall returns of 8-12% pa with reduced volatility.

timarr

4th Jan '20

Hi herbie

I don't really agree, gold shot up in price from Sept 2006 until Sept. 2011, it more than trebled.

The credit crisis lasted from roughly April 2007 to March 2009 - during that period gold doubled, more or less.

However, in deciding whether to hold gold as a hedge against future uncertainty you've got to weigh up the opportunity cost as well as the downside protection. Since 2011 the price of gold has gone nowhere while even the sluggardly FTSE100 has more than doubled on a total return basis.

If you're betting on a crash then holding gold is a reasonable thing to do but if you're simply holding cash waiting to invest then it's a lousy place to keep your money. And anyone who's been waiting for a proper crash has already been waiting over a decade. They'll be right eventually, of course. Poorer, but right ... ;-)

timarr

Rusty2

4th Jan '20

Yes I agree that gold has not done so well in the last 9 years but if you look at the last 20 years gold has gone up 6x in £ valuethat is 500%. The FTSE100 has gone up only about 20% is that time, including dividends "Between 1999 and 2018, the FTSE 100 brought returns of 3.18% a year, meaning the value of your original investment would have increased by 81.3%.", I don't figures for the last 20 years. I would not hold gold in a bull market but this question is what to invest not related to shares in case the market crashes. Gold price has been rising in the last few years just as it did in 2006. Last year I have started to invest in Gold ETFs.

sssrpm

28th Jan '20

Hi all,

Just wanted to say thank you for all of your thoughtful and helpful answers here.

All the best!

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Non stock market correlated investments

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Sssrpm

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