An economic slowdown, or even a full-blown recession, doesn’t necessarily mean it's time to cash in your remaining stocks and hide your money under the mattress.

This should be a time to review the lessons you learned from previous market misery and make the necessary adjustments to your long-term investment strategy.

Equities
Despite a torrid 12 months, some fund managers are consistent in the view that value investing is set for recovery and that the market environment now puts value investors in a strong position to outperform.

Clive Beagles, senior fund manager of the UK Equity Income Fund at J O Hambro Capital Management, says, ‘Value does outperform over time and there are great opportunities at the moment, for example with well-run companies profiting from the demise of their competitors. What’s more, UK equities currently look as cheap relative to bonds as they have at any time since the 1950s and yielding more than government bonds.'

According to the fund managers, equities are at their cheapest versus bonds since 1952, and great opportunities are available for the active stockpicker.

Alternative trading strategies
According to exchange-traded fund (ETF) provider iShares, the ongoing volatile market conditions is encouraging ETF growth and will benefit ETFs over a longer period as investors will continue to address the issue of risk.

In September, iShares experienced exceptionally large gross-trading volumes, reaching more than €25 billion in trading of its European-listed ETFs versus €15 billion in September 2007.

Average global daily trading volumes for all ETF providers combined were €96.1 billion in September 2008 compared to €42 billion in September 2007, representing an increase of 128.8 per cent compared to the same period last year.

Andrea Morresi, head of sales for iShares in Europe, says, ‘Recent events have driven investors to re-evaluate their use of investment vehicles with less transparency, for example with products such as swaps and futures. Investors are deeply concerned about the issue of counterparty risk and the rising cost of derivative products. ETFs are an ideal tool for navigating the current environment, continuing to offer transparency and flexibility during these unprecedented times.

Corporate bonds
Despite unprecedented levels of volatility over the past year, the corporate bond market performed well compared with the equity market, offering high levels of capital protection and income.

Now, historically cheap valuations in many bonds and the fact that fixed income markets are pricing in a full-scale depression, not the expected recession, provide investors with an entry point.

Peter Hicks, head of the IFA channel at Fidelity International, says, ‘Income investors face a real quandary at the moment, with Bank of England base rates at their lowest level in half a century. Fixed income could be the answer.

‘Overall, the sterling corporate bond market is yielding nearly nine per cent, and that's after markets have priced in a full-blown depression, rather than simply the recession experts anticipate. Our fund managers rightly expect volatility, so a bond fund's yield and capital levels will ebb and flow a little but, with interest rates at three per cent, companies now have the best incentive in a long while to borrow money from bond investors, which is a positive outlook for fixed income.