The mass rollout of Covid-19 vaccines has raised hopes that the page has been turned on a truly awful 2020. UK share investors will be looking to a sharp snapback in the global economy. This should lift corporate profits higher, sweep share prices northwards and make dividends start flowing again.
As a stock investor myself I’m eager for the same. But I’m not pinning all my hopes on a swift recovery. The emergence of virus variants and a subsequent spike in global infection rates has me worried. As an owner of UK-focused shares I’m concerned about the impact of Brexit on the domestic economy too.
Despite these worries, I won’t stop investing in my Stocks and Shares ISA as we enter 2021. There are plenty of strategies UK share investors like me can adopt to protect ourselves. Here are a few that I’m considering using as we move into the new year:
#1: Going defensive with UK shares
Buying defensive shares is a brilliant idea in the uncertain economic landscape of today. I’m talking about companies whose profits remain stable over the long term and that don’t suffer significantly (if at all) when the broader economy sinks.
There are plenty of top UK shares in this basket for me to pick from. I can plump for defence contractors like Ultra Electronics, for example, as arms spending remains largely robust even during downturns. Our unwavering need for running water and electricity makes Severn Trent and National Grid great picks for today, I feel. Food producers and ingredients makers like Tate & Lyle are more great defensive picks for times like these.
#2: Foreign exposure
The UK has been one of the hardest hit of all major economies following the Covid-19 outbreak. It’s down to the country’s huge reliance on a healthy services sector. With more lockdowns possible in 2021, investors need to be prepared for more pain. Brexit disruption from January 1 will pose significant challenges for the economic recovery on these shores too.
UK share investors can protect themselves by buying companies that source most, or even all, of their profits from abroad. There are hundreds of such businesses to choose from and the FTSE 100 is packed with them. Soft drinks colossus Coca-Cola HBC, rental equipment supplier Ashtead Group and life insurer Prudential are some I already own.
#3: Benefiting from sterling struggles
A worrying outlook for the British economy naturally bodes badly for sterling in 2021. Growth forecasts are already being cut by City analysts and more could be in store as we move into the new year.
But this doesn’t have to spell bad news for UK share investors. Indeed, companies that report in foreign currencies actually enjoy a profits boost when the pound sinks. And there are many that report in the US dollar or the euro for us to choose from. Those FTSE 100 stocks mentioned above that I already own are just a few that could benefit from extra sterling softness in 2021.