As investors brace for a market meltdown, experts reveal the best ways to protect your wealth and keep it growing

Warren Buffett famously said: be greedy when others are fearful – and now could be the prime time to put the veteran investor’s advice to good use.

Rising interest rates and inflation, conflicts and fears about the bursting of the AI bubble are causing plenty of fear in markets.

Global technology stocks are tumbling as concerns mount over the amount of cash they are spending on AI.

Around £3trillion has been wiped off the tech-heavy Nasdaq index in New York since its October 6 peak.

Shares of Google parent company Alphabet fell by 13 per cent on Thursday alone – wiping close to £400billion off its value. The tech titan – one of the so-called Magnificent Seven – is now down about a third since its peak in May.

Analysts warned of ‘tech carnage’ with shares in US giants Amazon and Intel plunging, wiping tens of billions of pounds off their value. But that could mean there are opportunities to be found, and money to be made, for brave investors willing to ride out the storm.

‘It feels like there is so much that could go wrong at the moment,’ says David Coombs, head of multi-asset investments at Rathbones. ‘And while there is no safe haven that can protect you from everything, it is worth thinking about what could happen, what assets could do well out of it, and what could protect you.’

The ground rules

For investors who want their portfolio to hold up whatever the weather, there are two key rules to follow.

The first is diversification: ensuring that your money is spread across a range of assets, sectors and regions. This is because not all will rise and fall in tandem – so if one takes a dip, it should be offset by another.

The second is time in the market. Try not to panic and sell when the market becomes volatile, as this only makes those ‘paper’ losses real. Staying invested – and potentially being brave enough to invest more – means you benefit when the market starts to recover.

But holding your nerve during volatile times is easier if your portfolio is well invested in assets that can shield you from the worst. Here are some areas to look at.

Commodities

These are one of the biggest drivers of rising inflation, so it makes sense to consider them for investment. That way, even if you suffer from rising living costs, you’ll benefit from the increasing cost of your investments.

The oil price is up 87 per cent over one year and the price of copper is up 31 per cent. Investors can choose a tracker fund that mirrors the price of the commodity, or invest through the shares of companies mining the commodities.

Coombs likes Freeport, a copper miner, and Rio Tinto, the world’s largest iron ore producer.

Gold is often considered a safe haven in times of uncertainty because it is a physical store of value. Its downside is it doesn’t produce an income, so investors rely on it to hold or rise in value to protect or grow their wealth.

The price is up 82 per cent over three years, but down 8 per cent over one year.

Greg Eckel, from Canadian General Investments, says: ‘It has been a bumpy ride for gold, but that does not diminish its diversifying qualities in a portfolio.’

He likes Franco-Nevada, which provides financing for miners in exchange for a share of revenue.

‘The company pays a dividend, which it has raised for 19 consecutive years,’ adds Eckel. ‘Franco-Nevada won’t keep pace with the miners, but when gold falls, it tends to hold its ground far better.’

Utilities

From water and electricity to waste management and telecoms, utilities are needed regardless of what’s going on in the world.

Many of these businesses have the characteristics of a monopoly, says Coombs, which means a steady customer base and the ability to pass on any rising costs to those customers.

He likes Wisconsin Energy, a US energy giant, and in the UK, National Grid and SSE. ‘We also own shares in Waste Management, a US company that empties bins,’ he adds. ‘It’s not very glamorous, but these are the unloved services we always need.’

One way to tap into the theme is through the Regnan Sustainable Water And Waste Fund, says Juliet Schooling Latter, research director at FundCalibre. It invests in the likes of United Utilities, Severn Trent and Veolia.

‘The fund is underpinned by long-term trends such as urbanisation, ageing infrastructure, resource efficiency and tightening regulation. And because these businesses tend to operate locally, they’re less exposed to geopolitical disruption,’ she adds.

Also consider ‘modern’ utilities, Coombs suggests – in other words the companies that provide the day-to-day tech services we cannot live without, such as Microsoft, Alphabet and Amazon.

Healthcare

People need care, drugs, diagnostics and devices regardless of the economy, says Trevor M Polischuk, portfolio manager at the Worldwide Healthcare Trust, and that’s why ‘healthcare has historically been a more secure spot’.

He likes AbbVie, a leading immunology company, and Gilead Sciences, a leader in HIV therapies. Merck, a specialist in cancer treatments, is another top pick ‘not just for its current drug offerings, but its emerging pipeline of new therapies’.

Polar Capital Global Healthcare is one fund focusing on this area, investing across all areas of the sector.

Its top holdings include Abbott Laboratories, a US firm specialising in medical devices, AstraZeneca, the UK pharma giant developing treatments for cancer and other serious diseases, and the insurance group United Health. The fund is up 57.8 per cent over five years.

Emerging markets

Many companies in emerging markets across Europe, the Middle East and Africa (EMEA) are ‘domestically focused’ – which means most of their sales are generated within their home nation.

That can provide some protection from global events because their economies tend to be driven by different patterns to the rest of the world, says Adnan El-Araby, from the Barings Emerging EMEA Opportunities Trust.

He likes BIM, a Turkish discount retailer, Capitec, a South African financial services group, and Allegro, a Polish online shopping platform.

He also favours companies that are well placed to benefit from long-term trends such as rising defence spending and infrastructure investment. Names in the portfolio that tie in with these themes include CSG, a Czech defence firm, and Etihad Etisalat, a Saudi Arabian telecoms network operator.

Financials

When stock markets are in turmoil, investors tend to trade more frequently and tinker with their portfolio. That benefits companies such as Deutsche Borse, the German stock exchange operator, and CME Group, a trading platform.

‘Importantly, given the relatively low cost of processing additional trades, much of this additional revenue flows through to profits,’ says Matthew Page, manager of the Guinness Global Equity Income Fund. ‘That means these businesses can enjoy improving fundamentals precisely when broader markets are under pressure.’

Crucially, these firms should continue to grow even without a market shock. They have dominant positions in their market, high profit margins and robust balance sheets.

Page adds: ‘These are attractive businesses in their own right, with the added benefit that market turbulence can provide a tailwind to their earnings, rather than a headwind.’

Technology

While global tech stocks may be tumbling, Mark Peden, co-manager of the Aegon Global Equity Income fund, believes others are worth a look.

‘You could argue that some large tech companies have the same characteristics as defensive stocks,’ he says. ‘Companies are just as unlikely to rip out Office 365 or their cyber-security subscription in an economic downturn as you are to stop buying toothpaste and bread.’

He points to the chip maker Taiwan Semiconductor Manufacturing Company as an example. A 70 per cent market share and loyal customers give it an edge over the competition, a steady pipeline of business and strong balance sheet.

Peden says: ‘If you think the world economy is slowing and find a company with long-term customer relationships, capacity booked for the next couple of years, a strong profit margin, no net debt and a rapidly increasing dividend, you should be excited.’

Catastrophe bonds

A niche option, these do well during natural disasters rather than stock market ones.

Paul O’Neill, chief investment officer at wealth manager Bentley Reid, says they can provide genuine diversification because their returns are not linked to stock markets, economic growth or technological trends.

Catastrophe bonds are where an insurance provider essentially insures itself against the risk of having to make a big payout if there is a natural disaster such as hurricane or earthquake.

Options include the active fund GAM Swiss Re Cat Bond Institutional, up 55 per cent over five years, and the tracker fund KRC Cat Bond UCITS ETF.

Cash

Having cash on hand means you can invest more when the market dips – which is like going bargain-hunting in the sales.

O’Neill says: ‘This may be the most underrated defensive asset. It’s the only thing that lets you buy what others are forced to sell.’

There are risks to holding cash. Rising inflation eats away at its real value, while exchange rate movements can have an impact when investing in overseas assets.

For that reason, in the long-term cash is not a great place to keep anything more than your emergency buffer, but in the short term, as long as you choose an account that pays more than the rate of inflation, it can offer a valuable port from the storm.

Coombs adds: ‘Cash isn’t great when inflation is rising, but it gives you opportunity when others are panicking. If you’re worried about volatility, it can give you some comfort.’

An absolute return fund is one alternative here – they aim to deliver a positive return in all market conditions. Though they don’t tend to do well during a bull market – when prices are generally rising – they can provide protection during tougher times.

The BlackRock European Absolute Alpha Fund has about 85 per cent of its assets in money market funds, which behave in a similar way to cash. Schooling Latter says: ‘The fund also invests in companies of all sizes across Europe and the UK. For investors, that means a source of balance and stability that is unlikely to behave like the rest of their portfolio.’