Hold These Shares For The Bumpy Ride Ahead

So that’s it then. The economy is on the up, house prices are rising, the markets will be flush with cash from Vodafone and the government’s coffers stuffed with Lloyds Banking proceeds. The financial crisis is officially over.


Well, maybe. But the world remains a risky place and September has historically been a volatile month for markets. Last week Bank of America Merrill Lynch’s chief investment strategist suggested we might be facing a CRASH, making an apocalyptic acronym out of five perceived threats: conflict, rates, Asia, speculation and housing.

Conflict is the looming Western engagement in Syria. Rates refers to the ending of artificially low interest rates created by QE. Asia covers fears that current account deficits in the region will hit Chinese growth. Speculation points to a resurgence in debt-funded investment, while Housing alludes to fears rate rises will hit the recovery of the US housing market.  Many might say the same about the UK.

No EZ solution

Personally, I’d turn CRASH into CRASHEZ. The eurozone is conveniently quiet while Angela Merkel is slotted back into place as Germany’s chancellor in this month’s elections, but the fundamental economic disconnect between German Europe and Southern Europe remains.

When things are looking healthier, but there are several potential one-off events that could knock markets back, there’s nothing to beat having a core of quality, defensive, high-yielding shares.

Monopoly money

A prime example is National Grid (LSE: NG) (NYSE: NGG.US). The monopoly provider of the UK’s high-voltage electricity transmission and gas distribution networks has agreed a new eight-year price controls which govern its return on equity. The need for capital investment to replace ageing assets means National Grid’s regulatory asset base will grow around 7% p.a. — and a bigger asset base means bigger profits.

The company is confident enough to project dividend growth at least in line with inflation “for the foreseeable future”.  Currently yielding 5.6%, that’s a great inflation-proofed return.

Of course National Grid isn’t risk free, but the threats to its business are distinct and relatively uncorrelated with markets. Much the same could be said about British American Tobacco (LSE: BATS) (NYSE: BTI.US).

One of the big four global tobacco companies, three quarters of BATS’ business is in emerging markets. It has market leadership in 60 countries. A defensive sector, powerful brands and strong emerging market presence add up to a convincing investment case, particularly in the tobacco sector where emerging market growth compensates for western market declines.  The prospective yield is 4.5%, and looks pretty safe for now.

Safe havens

But these are just two of several FTSE 100 companies that are safe havens for turbulent times. If you’re looking for similar shares for your portfolio, I suggest you look at the Motley Fool’s report: ‘Five Shares to Retire on’. Whether you’re saving for retirement or otherwise, it describes five companies that could form the cornerstone of any portfolio.  You can download it by clicking here — it’s free.

> Tony owns shares in National Grid, BATS and Vodafone but no other shares mentioned in this article. The Motley Fool has recommended shares in Vodafone.