Where not to invest in 2019: the regions, sectors and stocks that experts are avoiding

For investors, avoiding the most disastrous market falls can be just as important as picking the biggest winners. It goes without saying there is a lot of uncertainty surrounding markets at the moment, with Brexit dominating headlines in Britain while American president Donald Trump continues to cause concern globally.

At the start of the year, investors can’t move for market commentary, with experts predicting the stocks and sectors that will shoot the lights out in the coming 12 months.

But in these troubled times, Telegraph Money thought it was more useful to provide tips on what not to buy in 2019.

James Bateman of fund group Fidelity International said neither Britain nor America should be most worrying to investors. Instead, he sees Europe as the most problematic area this year.

Europe exports more goods than it imports and much of this goes to China. With China in the middle of an economic slowdown, this dependence is a worry, Mr Bateman said.

Of greater concern is the continued political instability of the biggest economies on the Continent. Italy has a far-Right prime minister in Giuseppe Conte, who remains an unknown quantity. Riots in France and even normally stable Germany is showing signs of some instability, he said.

Investors are feeling pessimistic about all stock markets. Britain’s largest broker Hargreaves Lansdown said its confidence index, which measures how optimistic British investors are, was at an all-time low in December.

As a result, many have been looking for places to put their money outside of the stock market. One option is alternative funds, which invest in property, infrastructure and off less liquid assets, instead of equities. 

While diversification is important, people still need to invest in these funds with the same mindset as when buying equity funds.

One of last year’s top performers in this sector was UK commercial property and many could be tempted again this year.

But David Coombs, a portfolio manager at Rathbones, an asset manager, said investors shouldn’t expect a repeat performance in 2019.

In the immediate aftermath of the Brexit vote these funds took a big hit, as investors worried that big business would move overseas, drastically reducing demand for office space and threatening the economy.

Mr Coombs warns the risk of a no deal Brexit is much worse than the upside would be from the Government securing a "good" deal.

Another of last year’s top performers that should be treated with caution in 2019 are UK government bonds, gilts, according to Ben Willis at financial advice firm Chase de Vere.

Funds investing in this area made a small return for investors, compared to a 9.5pc loss of Britain’s stock market.

This is because when stock markets perform poorly, investors sell and look to put their cash into something safer. Government bonds have historically been the place that they have gone to, pushing prices higher.

“We believe that these traditional safe havens are an area for investors to avoid in 2019,” said Mr Willis.

Bond yields remain incredibly low as interest rates set by the Bank of England remain anchored at emergency levels.

However, governor Mark Carney has indicated that interest rates will eventually rise, which would cause gilt prices to fall, leading to a loss for investors that buy at today’s prices.

Mr Willis said if investors want to add fixed interest assets to protect their portfolio, strategic bond managers who have the flexibility to invest more broadly are a better bet than a dedicated UK government bond fund.

Tom Sparke, investment manager at fund house GDIM, warned against leaving money languishing in cash.

While savings rates ticked higher throughout 2018 and are expected to rise further this year, interest rates on the vast majority of accounts are significantly below inflation.

Even the market-leading rate of Goldman Sachs’ Marcus account (1.5pc) would leave you worse off if inflation remains hovering around 2pc.

“So while this may look like a useful store of value, cash should not be making up a large proportion of many investment portfolios,” Mr Sparke said.

For cautious investors looking to buy alternative funds, Telegraph Money’s has its own list of our 10 favourite defensive funds.

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