Has investor sentiment changed?

Well what a week fellow investors. The bull market took a sudden turn this week and we fell out of the bullish channel we have been in since the rally started. This does not mean we`ll head lower from here but it is worrying.



To answer the question in the blog title, I do not know if sentiment has changed and the bull run is over but I am positioning myself for the downside and upside with a diversified portfolio.

Most of the pain for me came on the drop in Barclays share price, following Obama`s announcement that he would try and limit the banks size and prop trading activities in the US. This would effect the Lehman`s operations Barclays bought and provided the one thing markets hate - uncertainty. For now I still believe banks offer good value over the long term and will continue to hold, despite the uncertainty. Just ensure like me, you do not take big bets on one part of the market.

Fortunately I have the majority of my investments in defensive income shares and these came to the fore last week. As mentioned in the previous blog, water companies such as United Utilities and Severn Trent and Vodafone are seen as defensive, high yield investments. I have shown below their performance vs. miners and Barclays. You can see they went up while the stock market tanked, particularly miners and banks suffered. Miners particularly, I believe will struggle this year after rallying so much last year.



I also have Glaxo, Tesco, National Grid and BP. I also have 2 absolute return funds that deliver small returns in difficult markets such as these. These funds do rely on the fund manager to go long and short on the market at the right time but Blackrock Absolute Alpha has delivered a return of 7% over 2 years, while the stock market has fallen over 30%, so something to consider adding to your portfolio if you are worried about a bigger correction.

I continue to build cash as a % of my portfolio to shelter my balance sheet from these big falls in the stock market. If we see a continued correction in the stock market(at least 10%) I will invest some of this cash into the market.

At the moment we all hope that the stock market will not crash lower but please please please, diversify your portfolio and have a good selection of defensive shares and cash, as well as investing for growth over the longer term.