Investing up to St Leger's

The old phrase in the investment world, is 'sell in May and go away; don't come back 'till St Leger's Day'.

Amid the current volatility, the prospect of going away and coming back later in the year – the St Leger, for reference's sake, is run on the second Saturday in September – may well tempt many investors.

Taking most of the headlines at the moment is the constant rise of commodities.

Paul White, consultant at Belgravia Insurance Consultants, explains the rise of commodities is now "pretty much unstoppable".

"While we recycle our glass, China is opening two coal-fired power stations a day."

He suggests a conservative five per cent of a portfolio should be made up of commodities.

However, Shane Smith, chief executive of investment information provider IIR Group, is a little more guarded.

"I would be surprised if oil achieves the $200 a barrel level suggested by Goldman Sachs," he says.

"Commodity prices could come down. Profit margins among any firms hit by commodity prices could well be squeezed."

Meanwhile, Tony Aherne, director at Moneyspider.com, an online fund rating and valuation service, is far more pessimistic.

"With commodities, we could be approaching another bubble. Rice prices have almost doubled in the last year but people are not eating more rice

"We have had a tech bubble, a property bubble, a credit bubble and now the commodities bubble could now burst," he explained.

However, he does tip agriculture.

"The price of agricultural land is going up with the price of food. Agricultural funds seem pretty good, Food processing firms are also worth looking at as more people turn to canned and frozen food over fresh."

Another effect of a slowing economy – which Mr Aherne predicts is heading to a downturn, not a recession - could lead investors is clothing.

Mr Aherne suggests firms in the middle market may have problems as budgets tighten.

"The mega-rich have plenty of dough and will keep shopping. But elsewhere people will drop down and start shopping more at the Primarks. They will drop from Gucci to Next."

Turning to the slowdown in the US, Shane Smith, at IIR Group, warns investors not to try and second guess the bottom of the market.

He says: "It is always dangerous to try to call the bottom of a market … However, the consensus all have arrived at is the dollar is weak enough."

Paul White at Belgravia suggests a new president may help to boost the US economy – whoever it is.

"We are looking into 2009 for the US to start picking up, but the new president could give the economy a bounce."

Another area garnering a lot of attention is banking. Camps are split over whether it is now undervalued.

"Banking – in the long-term – could offer growth. Financials look attractive as a part of a balanced portfolio," says Mr White.

However, Peter McGahan at Worldwide Financial Planning warns that, if high inflation means the Bank of England cannot cut interest rates, banks could be in trouble.

"People had thought the worst was over for banks but this week we have seen further right-downs and share issues. More bad news is yet to come.

"If interest rates cannot fall house prices could go through the floor and banks could be left with a fall in assets."

He warns there is a lot of noise on the markets, making it hard for investors to make a decision, but the volatility today, historically speaking, is not as great as many people make out

Overall, Nick McBreen at Worldwide Financial Planning urges people to be circumspect.

"Cycles come and go. Investors must be aware of the nature of the beast."

He advises those who have not reviewed their portfolios in a while to take at look at them and be prepared for some surprises.

He adds investors need to look at five-year plans – but in the short-term they need to check how exposed they are to the UK.

Mr Aherne at moneyspider proposes a rather surprising plan of action.

"At the moment, the Abbey no-notice internet account offers 6.5 per cent and it is a good financial organisation."

Amid the current turmoil, staying away until St Leger's may well be a good option.

"We are in for an interesting ride," Mr Aherne concludes.


Daniel Barnes