Sharemarket investments that can survive the world’s financial woes

As asset values get flushed down the proverbial toilet and a global recession looms, it’s good to know where investment experts see security and growth.

War. Floods. Recessions. Surging living costs. Sinking house prices, share prices and bond prices. Warnings about “nuclear Armageddon”. Oh, and a pandemic, too.

It’s worrying time to be a human right now. And it’s also a worrying time for human investors, wondering where on Earth to put their money as everything shrinks in value, from high-growth shares and high risk-cryptocurrencies to conservative investments such as bonds.

Most Australians have money in the stock market, either directly or through their superannuation assets, and it plays a huge role in wealth creation.

But what stocks should you own when the world is in turmoil and global recession looms, as many economists are forecasting for 2023?

The simplest, shortest answer is quality stocks. That means strong companies that can deliver growing profits and rising dividends over the long term.

However, dig a little deeper and you’ll find different types of quality stocks will do best in different periods.

Last week some commentary landed in my inbox from Paul Taylor, investment giant Fidelity International’s head of investments in Australia.

When Paul speaks, I listen, as he is the man responsible for my best-ever investment decision.

It was about a decade ago, at an investment briefing where he listed Domino’s Pizza Enterprises as a top stock pick and explained why. Domino’s would became my first 10-bagger, increasing tenfold in value for a very tasty profit.

So what does Paul think now about recession-proofing a portfolio, and how is he positioning the Fidelity Australia Equites Fund that he has managed since 2003?

First, focus on companies that provide essential goods and services.

Taylor says history suggests these stocks perform well through inflationary periods and recessions.

“These types of businesses are in a much better position to pass on higher input costs because they are essential,” he says.

“Inflation actually helps them grow.

“Examples of essential businesses include supermarkets, consumer staples, healthcare, telecommunications, and utilities. The fund has overweight positions in Coles, Ramsay Healthcare and Telstra that fall into this category.”

Taylor also looks to invest in the cheapest sectors, and says those right now are energy, materials and insurance.

“The commodity sectors have very strong balance sheets and cash flows,” he says.

“And although they are negatively impacted by recessions, they have the prospect of an improving China.”

Taylor also likes Suncorp and says the sale of its bank makes it a “very focused general insurance business”.

He says Fidelity is underweight on banks, but has a “significant overweight position in Commonwealth Bank due to its strong balance sheet and superior technology platform”.

“I believe, when we talk five years from now, we’ll look back at this period of volatility and recognise it as a very attractive time to have invested in markets for the long term.”

However, investing in quality shares will not make you immune from falling stockmarkets.

If markets collapse, there will be nowhere to hide.

During the global financial crisis in 2008 and 2009 some of our best companies saw their share prices more than halve. Think the Commonwealth Bank, CSL and BHP, but since then their values have multiplied.

Whatever happens in the months ahead, the only way you will crystallise big stockmarket losses is by selling out near the bottom of the market.

If you stick with quality and are prepared to ride out the storm, a financial rainbow will eventually appear.

Originally published as Sharemarket investments that can survive the world’s financial woes