Trustnet Magazine 62 May 2020 | Page 23

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 trustnet.com