Market sentiment has been crying out for a big shot of confidence for most of the year. News of a breakthrough on a Covid-19 vaccine has thankfully provided just that. Hopefully, we’re seeing the start of the next exciting bull market for UK shares.
It’s too early to claim we’ve turned the corner regarding the coronavirus crisis though. There are still big questions to be answered over the efficacy of Pfizer’s treatment before we can say an end to economic-damaging lockdowns is on the horizon. It’s why many believe this week’s UK share price rally has been overdone.
Covid-19 isn’t the only thing that could hamper the global economy as we move into 2021 either. There’s also ongoing tension over trade tariffs that could harm growth in the near term and beyond. Just yesterday, the European Union slapped $4bn worth of tariffs on US goods. Failure by London and Brussels negotiators to create a Brexit trade deal by the end of the year could also damage the economic rebound and push UK share markets lower again.
Thinking like Warren Buffett
This doesn’t mean that, as a UK share investor, I’ll stop buying for my Stocks and Shares ISA however. I also fear this week’s stock market rally could be a bit premature. But there are still plenty of strategies I can embrace to make big returns whatever fate awaits the global economy.
For example, I can follow Warren Buffett and select UK shares that have clear and defined ‘economic moats.’ In simple terms, these are competitive advantages that allow companies to keep growing profits by outperforming their industry rivals.
Examples of this include Gaviscon manufacturer Reckitt Benckiser Group and Captain Morgan distiller Diageo. These particular products have immense brand power which other indigestion remedy and rum labels cannot match. Consequently, they remain reliable revenue generators during economic upturns and downturns. These FTSE 100 companies’ product portfolios are jam-packed with five-star brands like these too.
Other so-called economic moats include the ability to produce your goods and services at lower cost than your competitors. That could mean better quality products, intellectual property protection, or access to higher-growth territories.
I like these other UK shares too
As I say, there are other steps I can take to make big returns in the current climate too. I can buy non-cyclical UK shares whose profits remain robust irrespective of broader economic conditions. I can buy a broad array of water suppliers, car insurance providers, food manufacturers and drugs makers, for example. The brilliant earnings visibility of such stocks means many have the confidence to keep raising dividends in all conditions too.
Half-glass-empty investors can also buy into counter-cyclical UK shares today. Firms like insolvency claims specialist Manolete Partners, and owner of the Primark discount retail chain Associated British Foods, are great ways to play this theme, in my opinion.