Defensive strategy | A case study

John wanted to get a return on some money that he had inherited and looked first at bank and building society savings accounts but was disheartened by the low interest rates. He also considered investing in the stock markets but discarded this option as he already had a lot of money invested in equities.

We recommended a defensive portfolio, as this would help diversify his investments. Included in this strategy were bonds, preference shares and property/infrastructure shares.  Although John knew about bonds he had not heard of preference shares before. We explained that preference shares were riskier than a bond but less risky than an ordinary share. This was because preference shares are less senior in the credit hierarchy than bonds and so provide less security.

He also asked why we had included an allocation to property/infrastructure shares. We explained that we aimed to invest in companies whose assets were crucial to the operation of society and that were income producing. An example of an infrastructure share would be a company that invested in renewable wind and solar projects.  One strength of this assets class was that the income generated had a good link to inflation and as a result increased most years. This reflected the fact that rents were often either directly linked to inflation or were subject to upward only rent reviews. Another attractive feature was the ability to generate capital gains for investors. This might be the result of investing in undervalued assets or from projects to improve the existing assets and their associated capital value.

Subsequently John was very happy with the results of his investment strategy. It had delivered returns well in excess of the returns available on bank savings deposits. Please see link for past performance. Whilst this strategy may not be suitable in all cases, it had delivered exactly what John had been looking for.

If you would like to know more please contact us on 07838 360579 or email rf@coloma-wealth.com

Past performance is no guarantee of future returns. Investors should seek advice about their own circumstances.

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This post was written by Tim