Few investors can have expected the stock market carnage that unfolded in January to have occurred so early. Traditionally, January is quite a positive month.
The fragile nature of investors' support for equities was underscored as renewed concern over China and increased Middle East tension took their toll. It was the worst start to a New Year since the dotcom bubble. Where does all this leave the contrarian?
Contrarianism, by definition, functions best when a strong consensus view sends valuations out of line with the fundamentals, whether to the upside or downside.
But the consensus view is hardly ever much more than an extrapolation of the recent past.
Unfortunately for contrarians, the past year was pretty much a non-event. For UK investors, the performances of the major asset classes were all pretty similar and pretty meagre.
Equities as a whole, in the form of the FTSE All-Share index, produced a total return (including reinvested dividends) of 1 per cent over 2015. The FTSE All Stocks Gilts index was up 0.6 per cent.
Of course, there were very divergent sectoral performances within equities. Broadly speaking, oil and gas firms, mining companies and banks continued to do dreadfully.
In contrast, consumer stocks with so-called visible earnings were bid up sharply. The energy and financial sectors remain fertile ground for the contrarian, but oil and commodity prices have continued to fall.
One key issue will be whether some larger companies in these sectors cut their dividends; some miners have already indicated they will. This will depend on the outlook for prices and the global economy.
However, there can have been few times when the consensus on the outlook for the economy and hence interest rates has been less clear. Many people think the interest rate rise in the US was premature and may need to be reversed. Equally, some foresee a gradual rise up to 2 per cent or so.
Others - perhaps a diminishing band - think interest rates will need to shoot up in response to rapidly increasing inflation. These divergent views reflect the uncertainty caused by the unconventional monetary policy (quantitative easing) pursued by central banks since the financial crisis.
In the face of this confusion and doubt about the robustness of income streams from the depressed energy sectors, for our current crop of contrarian choices, we concentrate on trusts with an income bent standing at reasonable discounts.
One of the beauties of investment trusts is the potential they offer for building up revenue reserves, which helps protect their dividends in troubled times.
The first pick, North American Income Trust, may seem an odd one for a contrarian who believes US equities are overvalued.
However, excluding the trust's Molson Brewing holding, where corporate action may be a distortion, the weighted average price/earnings ratio of the balance of the trust's top five holdings - Philip Morris, Dow Chemical, Verizon and Microsoft - is 15.2 times. It's not excessively expensive.
A stronger dollar may affect future earnings from the underlying holdings of this Aberdeen-managed trust, but this will increase the sterling value of the dividends.
The dividend should be well-supported, and the US economy appears to be on an upward trend. The trust yields 3.8 per cent and is on a discount to net asset value of 10 per cent.
Aberdeen Asian Income is a more obvious contrarian play: Asian markets are unappealing at the moment, but their long-term potential for wealth creation and shareholder value remains. The fund's largest exposure, 26 per cent, is to the more developed market of Singapore, which was down 14 per cent in 2015.
Further currency devaluations in Asia may have a negative impact on the sterling value of the dividend. The trust yields 5.8 per cent and stands at an 8 per cent discount.
Our final choice, London & St Lawrence, is a smallish trust, so be wary of the spread between bid and offer prices. It has well-diversified global exposure through a near-70 per cent holding in other trusts.
The dividend has risen by 48 per cent over the past 10 years, and capital growth is decent. The trust yields 4.3 per cent and is on a discount of 7.1 per cent.
Concentrating on trusts that should be able to sustain significant dividends, even if the global economy stumbles, may help contrarians navigate what may be another difficult year.
The author is founder of IpsoFacto, an investment trust advisory company, which offers a free trial to new subscribers. Visit ipsofactoinvestor.co.uk for details.
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