Investors are being advised to focus on income as they seek to protect their portfolios from the latest stock market falls.
Corporate bond funds and companies paying strong dividends are attracting investor attention after the FTSE 100 fell below 4000 again this week, close to its low of last November.
Fixed-income fund managers still argue that the market is pricing in too much risk of default in investment-grade bonds, meaning that it is possible to pick them up at a bargain price.
But they warn that the risk of default has increased sharply in recent months.
Legal & General, the insurer, was forced this week to double its default cover to reflect the increased risk that companies will default on their debt.
Investors are also being advised to buy shares in good quality companies that are likely to continue paying a dividend.
Jonathan Jackson at Killik & Co recommended buying stocks on yields of 5 to 7 per cent, such as oil majors and pharmaceuticals.
But he warned investors to be careful of stocks that are on high yields but do not have stable dividends – such as banks and property companies.
Global stock markets began a fresh descent last week after a US Treasury plan to provide financial stability was criticised for having too little detail.
The sell-off continued this week, as fears grew about the nationalisation of a key US institution, and the FTSE 100 closed on Friday at 3889.
The increasingly gloomy short-term outlook for company profits has led analysts to suggest that investors perceive equities as being overvalued.
Mike Lenhoff, head of strategy at Brewin Dolphin, warned that the FTSE could fall another 15 per cent. This would affect corporate bond prices as well as equities, he cautioned.
But he predicted that any such fall would be swift, and followed by a rise as buyers recognised shares were priced at fair value.
Advisers said there was little point in investors selling out of all their equities.
“It’s understandable investors are nervous but the key is – don’t panic and don’t sell out now as you’ll crystallise your loss,” said Ben Yearsley, an investment analyst at Hargreaves Lansdown.
