Hot properties tempt, but don’t abandon safe haven investments

Are there any investment themes worth buying into today? Peter Cooper answers.

Around the world many investors are sitting on record cash balances despite appallingly low and even negative interest rates, while there has been the biggest rush into precious metals in four decades this year.

Yet if you are looking for a return on your money rather than just the return of your money, then you may need to be a bit more creative.

One approach is to single out major investment themes that hold out the promise of higher returns in the not too distant future. For the convenience of personal investors these are often bundled up and sold as exchange traded funds and mutual funds.

A third approach has been on offer from Swissquote, the online Swiss bank and brokerage with an office in the Dubai International Financial Centre, since the start of the year. Its analysts have come up with a total of 55 investment themes.

Showing the highest one-month returns are Brazil recovery (30.7 per cent), Shale gas (28.3 per cent), 3D printing (22.5 per cent), Copper (21.4 per cent), Bric leaders (19.5 per cent) and Dubai real estate (19.4 per cent). Basically each theme provides you with a basket of a dozen key stocks to capture this sector.

Presently you have to buy individual stocks, and that makes this more expensive than the one-click ETF and low-cost mutual funds. But you will soon be able to buy the whole basket in one transaction.

So should investors be tempted out of their safe ­haven assets like cash and gold and diversify into investment themes that have provided some very appealing profits over the past month?

Just because an asset class has been going up rapidly over the previous month is not necessarily a guide to future performance. This is a constantly shifting league ­table. Gold was up the top a few weeks back and could easily swing back.

“Talking to our analysts the one thing that they all agree on is that volatility will stay very high in financial markets,” says Damian Hitchen, the Swissquote chief executive in Dubai. “Theme trading is designed for active traders.”

True, and trading in a volatile market is often a way to lose a lot of money very quickly and pay commissions to brokers like Swissquote. What may work better is to think carefully about a longer-term strategy and stick with it rather than shifting around and paying commissions.

If, for example, you are convinced that central bank money printing is finally getting out of control and that money will now begin to lose its value through devaluation or inflation, or both, then you could start investing in gold mining shares.

At the time of writing, people who bought the GDX gold mining ETF are up almost 50 per cent so far this year. Gold mining shares are leveraged against the price of the underlying commodity, which is the best performing major asset class of 2016.

Then again we have just seen a rally in global stock markets and oil prices that may not last. You don’t need to be a billionaire hedge fund manager like George Soros to see that many stock markets are close to all-time highs with a global economic slowdown in progress.

How stable is that? And what would a sudden swing back down in the opposite direction do to pretty much every trading theme? It would blow them apart and your money would go down the drain with them.

Even gold stocks might get a pummeling in a real market rout, as happened in 2008-09. However, the real problem for would-be investors is that things don’t look that much better if central banks do succeed in somehow holding the present lacklustre status quo.

More years of subpar or no economic growth and low interest rates do not add up to the sort of dynamic business environment that raises company profits and boosts stock markets and other ­asset prices.

Actually what is needed is a recessionary cleansing of the system with debt written down, poor businesses bankrupted and banks restructured. That would provide a good time to invest with asset prices low and the recovery ahead, and those with cash or precious metals will have this opportunity to come.

Manic trading activity in volatile financial markets that are mainly close to seven-year highs is not to be recommended. Indeed, it is another sign that the next major correction cannot be far away.

Still, singling out themes that might be the best buys in the future is a good idea, just take care of your safe haven positions for the moment.

Peter Cooper has been a senior business journalist in the Arabian Gulf for the past 20 years