The Motley Fool

Stock market crash: Is this fund the perfect hedge?

If you are concerned about a second stock market crash, you may well want to consider investing in different asset classes that are less correlated to the stock market.

Anyone who has seen the film About a boy will have wondered what it would be like to earn royalties from a song. Well now there is an asset class that allows you to do exactly that across an entire portfolio of music.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Protection from a stock market crash?

Hipgnosis Songs Fund (LSE: SONG) owns a portfolio of song royalties. Merck Mercuriadis, who set up the fund, is no stranger to the music business. He has managed artists including Beyoncé, Elton John, Iron Maiden, and Guns N’ Roses.

The royalties provide a regular, reliable income stream. There appears to be no correlation between the fund and the state of the economy or the stock market. In my opinion, this makes it a great hedge against a second stock market crash.

The fund currently pays quarterly dividends of 1.25p and had earnings per share last year of 10.7p. This stable dividend of just over 4% therefore looks very appealing in the current market climate.

Hipgnosis only listed on the market in July 2018, but its portfolio has already swelled to over 13,000 songs. The company market cap recently broke through £1bn and was propelled into the FTSE 250 in March this year.

The fund owns a stake in four out of the top five Billboard songs of the decade. It also owns a stake in eight of Spotify’s top 25 most played songs of all time.

Artists and songs are too numerous to mention but include Uptown Funk and Shape of You. This month it bought the future royalties to all 197 Blondie songs.

Hipgnosis believe it can manage the songs better to maximise their income potential through video games, TV commercials, or cover versions.

Going for a song?

In my opinion, the price looks fair, but not a bargain. July financials reported an operative net asset value of 116.7p and the fund has since added to its catalogue. The portfolio has been acquired on an average multiple of 13.9 times historic annual income.

It has returned 22.7% including dividends since IPO two years ago. I think this shows the protection the fund provides from a stock market crash.

In terms of risks, I would point out that song royalties are probably not the most liquid of assets. There is also an element of being subject to popular opinion or trends. However, management insist it only invests in songs with a proven track record and reliable income stream.

I think this fund provides a great way to diversify your portfolio in an asset class that protects you from a stock market crash. If I were a retiree looking for a reliable income stream through dividends, I would give Hipgnosis some serious consideration.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

David Barnes owns shares in Hipgnosis Songs Fund. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.