August is generally a relatively quiet month. But this year, it’s a bit different, with the prospect of a no-deal Brexit causing economic devastation, and Donald Trump’s trade war with China adding to massive global uncertainty.
In such times, I’d expect investors to be heading for safety. And, according to the latest update from Interactive Investor, that’s exactly what’s been happening.
Gold? Really?
Interactive Investor, the UK’s second largest platform for execution-only investors, reported a rush for gold in August. It’s traditionally a safe haven in hard times. But I consider buying gold a serious waste of an opportunity when there are so many undervalued stocks around to be had at knockdown prices. “Be fearful when others are greedy, and greedy when others are fearful,” said Warren Buffett. I reckon now isn’t the time to be fearful.
Many are trusting their cash to funds, which isn’t unusual. I don’t like the idea of trusting my money to a fund manager, as the majority of them fail to even match the FTSE index they’re investing in.
But saying that, around half of the fund buys seen by Interactive Investor in August were index tracker funds, which are passively managed and just aim to track a specific index, like the FTSE 100. I see that as definitely a good thing — if you think shares are cheap, but you’re not sure which are the best to go for, an index tracker fund can be a great investment.
Must-have shares
What individual shares were being bought? Mostly ones that look to me like seriously undervalued divided-paying ones. Lloyds Banking Group attracted a lot of buying, as did Aviva and Legal & General. All are in the heavily hammered financial sector, and all are on super low P/E multiples of under seven, which is around half the long-term FTSE 100 average. Are investors finally waking up to these shares being simply too cheap? It looks that way, and I think we could finally be heading up from the bottom.
Interestingly, some high profile speculative shares featured too, with Sirius Minerals attracting a lot of purchases. Sirius shares slumped after the firm’s decision to delay its attempted bond issue cast fresh doubts on the recent funding package, and there’s clearly been optimism from those who see the shares as too cheap. I do see Sirius as a bargain now, though I don’t think I’ll buy any more — but I’ll certainly hold on to what I have.
Folks have been buying Thomas Cook shares too, in the hope of a recovery, but I’m not convinced that’s a good move. The bailout deal from China’s Fosun has been confirmed, but it leaves existing shareholders pretty much diluted out. I’m not optimistic.
People want Woodford
On the investment trust front, Scottish Mortgage and City of London investment trusts took the top spots, and I see them both as very solid long-term choices.
I’m intrigued to see the out-of-favour Neil Woodford making an appearance, with his Woodford Patient Capital trust among the most desired in August. But I’m not surprised, with the fund’s shares selling at a discount to NAV of more than 40% — though I’d be cautious of investing on that fact alone.
September should be interesting…