In focus 44 / 45
[ SECTOR PROFILE ]
After the boom years of the commodities supercycle, trusts focused
on natural resources have dwindled over the past decade. Adam Lewis
asks if they are due a rebound
On the rocks
Investors in the IT Commodities
& Natural Resources sector
enjoyed a strong start to the
millennium, with the average
trust making 487.42 per cent between
2000 and 2010 while the MSCI World
index struggled to eke out a return.
However, the next 10 years saw a role
reversal – as the global market set off
on the longest bull run in history, the
investment trust sector lost 46.48
per cent.
So what can investors expect from
the next 10 years?
Paul Angell, investment research
analyst at Square Mile, says a fall of
some 45 per cent in the S&P GSCI
(a broad commodity index) in the
first four months of 2020 shows
this is not an area of the market for
unsophisticated investors.
However, he adds that the return
stream of particular commodities
provides diversification benefits, as
the supply and demand equation can
differ substantially from the broader
economic picture which affects equity
market valuations.
“Each commodity should of course be
considered on its own merit, with gold
– the most traditional ‘safe haven’ asset
– offering a very different return profile
to cyclical commodities such as oil, as
has clearly been the evidence over the
first four months of 2020,” he says.
“Over this time, the price of gold was
up about 17 per cent, while Brent Crude
oil was down around 62 per cent.”
The return stream of
particular commodities
provides diversification
benefits, as the supply and
demand equation can differ
substantially from the
broader economic picture
TRUSTNET
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