The number-one risk top portfolio managers are concerned about right now is a second wave of the coronavirus. In July’s Bank of America fund manager survey – a monthly survey that canvasses the views of top fund managers around the world – over 50% of respondents said a second wave of Covid-19 was the biggest risk to share portfolios. Meanwhile, in August’s survey, about 40% said the biggest threat to portfolios this year was the worsening of the Covid-19 crisis.
In my view, a second wave is a valid concern. Until a vaccine is launched and available to everyone, we can’t be sure that Covid-19 won’t return. A second wave is a real possibility. This could have a drastic impact on financial markets. UK shares could take a big hit.
Now’s the time to be thinking about risk management. So, how can you protect your share portfolio from a second wave?
I’d avoid these stocks
The first thing I’d do is check your exposure to UK shares that could be hit hard by a second wave. Examples include airline stocks (easyJet, IAG), cruise ship operators (Carnival), pubs (JD Wetherspoon), cinema operators (Cineworld), and gym operators (The Gym Group).
If we see a second wave, it’s likely that these kinds of stocks will underperform. You don’t want to be overexposed.
UK shares I’d buy for a second wave
Then I’d focus on building a portfolio that contains UK shares that should do well no matter what happens with Covid-19. Specifically, I’d focus on three main types of businesses.
Firstly, I’d invest in consumer goods businesses, such as Unilever and Reckitt Benckiser. These are highly reliable, dividend-paying companies that tend to hold up well when the economy is down.
Reckitt Benckiser, in particular, is a great UK share to own right now, in my opinion. It owns the largest portfolio of surface disinfectant brands including Dettol and Lysol. It’s also recently launched a new professional services division to help organisations keep their customers safe. In my view, Reckitt Benckiser is a classic hedge against a second wave.
I’d also buy healthcare stocks. Like consumer goods companies, healthcare companies are quite resilient. People still need medication during a recession. Two FTSE 100 healthcare companies I like are GlaxoSmithKline and Hikma Pharmaceuticals. The former specialises in vaccines and consumer healthcare products. The latter develops branded and non-branded medicines. Both UK shares are also reliable dividend payers.
I’d also buy shares in UK businesses that could see higher demand for their services in a second wave. Some examples include IT specialists Computacenter and Softcat and communications specialist Gamma Communications. These companies should all benefit from the work-from-home trend. In a second wave, they should outperform.
They are the three main types of UK shares I’d be buying right now. Own a fully-diversified portfolio that contains a number of different companies and your share portfolio should hold up well if we see a second wave.
The post Fund managers are worried about a second wave. These are the UK shares I’d buy now appeared first on The Motley Fool UK.
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Edward Sheldon owns shares in Unilever, Reckitt Benckiser, GlaxoSmithKline, and Softcat. The Motley Fool UK has recommended Carnival, GlaxoSmithKline, Softcat, The Gym Group, and Unilever. 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.
Motley Fool UK 2020