There will be winners

Charlotte Moore

Times may be tough, and staying in may be the new going out, but some companies will thrive in the recession, says Charlotte Moore

The unremitting onslaught of bad news about the economy paints a bleak outlook for the UK. But the nation that endured the Blitz is not going to give in so easily and already people are learning to adapt to tougher times.

Small pleasures are taking the place of large extravagances. Staying in is the new going out. We’re turning our sitting rooms into home cinemas – the online DVD rental company Lovefilm says that its membership has soared by 40 per cent since the start of the credit crunch. We’re learning to drink at home – Fever-Tree, which makes upmarket tonic water and other mixers, has seen its sales rise by 300 per cent over the last year. And we’re not denying ourselves that ultimate feel-good treat – good-quality chocolate. Green & Black’s says sales in the three months to the end of November rose by 11 per cent.

Fear and uncertainty may be pervading the City, but some companies will emerge from the crisis stronger than others. The trick for the canny investor is to pick the winners out of the rubble of the stock market.

Seasoned investors, like the legendary Warren Buffett, know that the time to buy stocks is when others don’t; he recently revealed in the New York Times that after years of staying out of the equity market, he is now buying US stocks and shares. Francis Brooke, who runs the Trojan Income Fund for Troy Asset Management, agrees with Buffett: ‘In certain areas of the equity market, it is possible to take advantage of valuations that have not been this low since the early Eighties.’

But how does an investor go about picking companies that will survive? To answer that question, I turned to those investment professionals who are paid to pick the winners. In times of economic hardship, fund managers invest in sectors they class as defensive. Even in an economic downturn, people will have to continue spending money on certain items, such as gas, electricity and prescription drugs. So investors have sought refuge in utility companies and pharmaceutical producers in previous downturns. When the value of riskier sectors tumbles, these defensive stocks perform better and can prove to be lucrative investments.

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