Having funds to invest right now is a fortunate position to be in. In most cases, this is likely due to a sensible investment strategy that has meant not putting all your eggs in one basket at once. If you are in this position, you can now be selective in looking at where best to deploy the cash to hopefully obtain the best return.
Willis Owen have just released data showing the best and worst performing sectors across the investment universe in March. This period makes for very interesting reading as it was a month of severe declines in global stock markets. Not only that, but virtually all other asset classes also decreased, as investors rushed to safe havens.
There are opportunities to make money amid all this, if you have a spare £1,000 or so to invest.
UK Gilts
The best performing sector in the investment space last month was UK Gilts. Investing in these UK government bonds would have returned +1.63% last month. I wrote about the benefits of including some bonds in an investment portfolio recently.
In summary, bonds and stocks tend to have a negative correlation. This means that when the prices of stocks are falling, the prices of bonds usually go up. The jargon-free explanation behind this is that investors tend to pull money out of equity markets when times are bad and buy bonds instead, as they are seen as a safer investment.
For a stock investor like me, I do not want to get too involved in bonds. However, this data and the performance we are seeing is making me look to allocate a small amount of funds into bonds. This should help me weather any further stock market storms by hopefully generating some profit from the bonds.
UK smaller companies
Unfortunately, the worst performing sector seen last month was smaller listed companies in the UK. The report noted that “smaller companies in particular are a focal point for pain at present as they are likely to find it harder to survive the shutdown and subsequent collapse in economic activity.”
The takeaway from this that I am going to continue with trusted FTSE 100 names to invest in. While it is not a simple case of being too big to fail, larger firms generally have more power to manage cash flow. This can be either from larger credit lines offered from banking partners, or from cutting dividends due to be paid to shareholders.
Whatever you like to pin the exact reason on, the numbers speak for themselves. Smaller UK firms lost 22.56% last month on average. Some may ask if this is a good buying opportunity, which is a valid question. In my opinion, there is further pain ahead for the economy in general, so I would steer towards allocating some funds to bonds, and some to large-cap FTSE 100 firms.