Investment ideas for V,U and L-shaped recoveries

BetaShares Director of Capital Markets Adam O’Connor has some investment ideas to suit whatever the recovery curve.  While economist discussions are focussing on whether it will be a V, U or L-shaped recovery, he said there are opportunities in each of these scenarios.

For investors looking to ‘buy the dip’ for V-shaped recovery, which would imply the worst case has now been priced in and market could recover strongly from here – the majority of flows into the Australian ETF market have been to low-cost broad Australian ETF exposures. While investors looking to get exposure to the U.S. could consider the NASDAQ index which offers exposure to a number of companies who may continue to see structural growth when limited growth is available.

O’Connor suggested investors should look at their own habits as proof points for what might be in demand going forward – things like Netflix, gaming stocks and Amazon where people are increasingly relying on online shopping, as companies investors will favour going forward.

“The current crisis has brought forward the shift from bricks and mortar retail,” said O’Connor.

For investors looking to use leverage but not margin loans, geared funds offer an alternative – where the LVR is managed within the fund and the funds are ‘internally geared’ meaning there are no potential margin calls for investors.

In a U-shaped recovery, it is much slower and there may be a little more pain ahead for certain sectors of the market. An allocation to global equities with higher quality companies who have lower debt, stable earnings and higher return to equity is a viable investment option.

“If you believe the path to recovery is a long one, exposure to quality makes a lot of sense.”

Another investment option in this environment is hybrids, particular over bank equities which have been experiencing significant headwinds.

In an L-shaped recovery where you believe the worst is yet to come, O’Connor said hedging portfolios against further falls, cash reserves, safe haven assets, longer duration government bonds and managed risk equities are worth considering.

Cash reserves help to weather the storm so when the dust settles, investors can seek out other opportunities. While BEAR funds can be used to reduce equities exposure without having to sell down holdings.