The answer resides in one of his top holdings Diageo the drinks business which markets the ‘liquid gold’ he’s referring to, Johnnie Walker whisky.
It’s a teasing comment, but he has a serious point to make. Shares in Diageo, a mature UK consumer-facing business – the kind others might tell us to avoid – grew by around 19% in 2011, which happened to be almost the double the 10% return of physical gold, and that’s excluding dividends.
Of course, you’d be a fool to presume that all UK consumer stocks will deliver double-digit returns over the next 12 months but the same can be said for the safe havens, and gold is the prime example, where many investors continue to shelter from economic uncertainty.
“Diageo can’t protect you from dislocation in the markets, nor panic in the streets, but a pick-up in shares like this, and a fall in gold [since the spot price peaked in September] says investors believe the worst isn’t going to happen,” added Train.
Brutal year
2011 was a brutal one for the global economy with the eurozone woes at the forefront of our thinking and markets reacted accordingly.
According to FE Analytics, the FTSE was down 2% over the course of the year, and it’s a similar story for the UK All Companies and UK Equity Income sectors. That’s not great, but there were still plenty of funds that made money.
The ultimate question is how much worse do we really think it will get? Recent history suggests that a return to risk assets might be a wise move – if we narrow our time frame from 1 September to today, the FTSE 100 is up 5% while an investment in gold would have fallen by 8%.
Fear over fact
As Gavin Haynes, managing director of Whitechurch Securities, pointed out in the latest January issue of Portfolio Adviser: “UK stock-market valuations show that, in many areas, shares are being priced by fear not fact at present.
“The FTSE All-Share Index looks cheap versus history on a number of valuation measures and it is yielding an exceptional 3.5% – over 1.5x that of gilts.”
As Warren Buffet once said: “Be greedy when others are fearful”.
Are you looking to cut your portfolio’s weighting to safe havens in favour of risk assets? Let us know your views.
