Technology stocks have suffered a dramatic fall as investors grow increasingly worried about the amount of cash being spent on artificial intelligence. The Nasdaq index in New York has lost around £3trillion in value since its peak on 6 October. Alphabet, the parent company of Google and one of the so-called Magnificent Seven largest firms, saw its share price drop by 13 per cent on Thursday alone, destroying close to £400billion of its market value. The company is now down roughly a third since reaching its peak in May. Shares in other US technology giants including Amazon and Intel have also plunged, wiping tens of billions of pounds from their combined values. Analysts have warned of widespread 'tech carnage' across the sector.
Yet market turbulence can create opportunities for investors willing to take a contrarian approach. David Coombs, head of multi-asset investments at Rathbones, said: 'It feels like there is so much that could go wrong at the moment. And while there is no safe haven that can protect you from everything, it is worth thinking about what could happen, what assets could do well out of it, and what could protect you.' Financial professionals point to two fundamental strategies for weathering volatile markets. The first is diversification, spreading money across different asset types, sectors and geographical regions so that falls in one area are offset by gains elsewhere. The second is maintaining a long-term perspective, resisting the urge to sell during downturns, which converts temporary paper losses into permanent ones.
Commodities offer one avenue for protection. The oil price has risen 87 per cent over one year, while copper prices have climbed 31 per cent. Investors can access these through tracker funds or by buying shares in mining companies. Coombs recommends Freeport, a copper miner, and Rio Tinto, the world's largest iron ore producer. Gold, traditionally viewed as a safe haven, has gained 82 per cent over three years, though it has fallen 8 per cent over the past year. Greg Eckel from Canadian General Investments said: 'It has been a bumpy ride for gold, but that does not diminish its diversifying qualities in a portfolio.' He favours Franco-Nevada, which finances miners in return for a share of revenue and has raised its dividend for 19 consecutive years.
Utility companies provide another defensive option. These businesses, ranging from water and electricity suppliers to waste management and telecommunications providers, serve essential needs regardless of economic conditions. Coombs highlights Wisconsin Energy, a US energy company, along with UK firms National Grid and SSE. He also recommends Waste Management, a US bin collection company, describing such businesses as 'unloved services we always need.' The fund Regnan Sustainable Water And Waste invests in firms including United Utilities and Severn Trent. Healthcare stocks represent another resilient sector. Trevor M Polischuk, portfolio manager at the Worldwide Healthcare Trust, notes that 'people need care, drugs, diagnostics and devices regardless of the economy'. He favours AbbVie, an immunology specialist, Gilead Sciences, a leader in HIV treatments, and Merck, which specializes in cancer treatments. The Polar Capital Global Healthcare fund, which holds Abbott Laboratories, AstraZeneca and United Health, has returned 57.8 per cent over five years.
For investors seeking less conventional protections, emerging market companies with primarily domestic sales can offer diversification. These firms generate most revenue within their home countries, insulating them from global disruptions. Adnan El-Araby from the Barings Emerging EMEA Opportunities Trust likes BIM, a Turkish discount retailer, Capitec, a South African financial services group, and Allegro, a Polish online shopping platform. Financial infrastructure companies can also benefit from market turbulence. When stock markets become volatile, trading activity typically increases, boosting revenues for firms such as Deutsche Borse, the German stock exchange operator, and CME Group, a trading platform. Matthew Page, manager of the Guinness Global Equity Income Fund, explains: 'That means these businesses can enjoy improving fundamentals precisely when broader markets are under pressure.' Some technology companies with defensive characteristics warrant consideration too. Mark Peden, co-manager of the Aegon Global Equity Income fund, points to Taiwan Semiconductor Manufacturing Company as an example, citing its 70 per cent market share and loyal customer base.
For those seeking genuine alternatives uncorrelated to stock markets, catastrophe bonds merit attention. Paul O'Neill, chief investment officer at Bentley Reid, notes these perform well during natural disasters rather than stock market downturns, providing returns unlinked to economic growth or market movements. For UK savers and investors, this market volatility means those with diversified portfolios across different asset classes and geographies stand better positioned to weather losses than those concentrated in technology stocks.