Trustnet Magazine 62 May 2020 | Page 26

In focus 50 / 51 [ SECTOR PROFILE ] “Real interest rates can be a headwind for gold if they are high and rising, but this seems to be a low risk at present” testament to this. Yet he still believes gold “pretty much always” merits a place in a diversified portfolio. “The staggering levels of QE and other measures we have seen in recent weeks are bringing back concerns about the debasement of fiat currencies, while gold is coming out of the ground slowly given the depressed valuations of miners,” he says. “Central banks and sovereign wealth funds also appear to be big buyers as concerns mount about the huge supply of government debt. Real interest rates can be a headwind for gold if they are high and rising, but this seems to be a low risk at present.” Wood for the trees Olly Hughes, managing director of forestry at Gresham House, notes that outside of gold and other precious metals, commercial forestry assets also provide returns that are largely uncorrelated to stocks and bonds, with correspondingly low volatility. “Due to the growing demand and rising timber prices, UK forestry investments have outperformed all other classes over a 25-year period, PERFORMANCE OF FUNDS VS SECTOR AND INDEX Name 1yr (%) 3yr (%) 5yr (%) 10yr (%) M&G Global Dividend -8.38 8.41 37.64 124.86 BlackRock World Mining -5.49 11.39 35.46 -17.19 L&G Commodity Index -15.12 N/A N/A N/A IT Commodities & Natural Resources -20.33 -25.42 -14.08 -59.35 MSCI World -0.78 18.7 54.91 154.34 Source: FE Analytics delivering an annualised return of 9.2 per cent,” Hughes says. “It takes a tree about 40 years to reach full maturity. However, unlike most agricultural crops, trees can be left in the ground for about 15 years without impacting the quality of the end product. This means the timber harvest can be timed to match demand and higher prices, without losing output. This flexibility ensures consistency in long-term returns.” The closed-ended option: BlackRock World Mining The BlackRock World Mining trust adopts a flexible approach to investing across base and precious metals. While performance slipped at the start of the year, Emma Bird, research analyst at Winterflood Investment Trusts, notes the portfolio’s increased exposure to gold should act as a diversifier. “Another advantage offered by the fund is the diversification of income stream across dividends, option premia, fixed income and royalties,” she explains. “This should help to protect the fund’s revenues in the event of underlying dividend cuts by mining companies.” For general exposure: M&G Global Dividend “Rather than investing directly into a sub-sector such as commodities, investors could opt for a global equity manager, who is able to allocate capital to well-run companies at times when they believe the economic conditions warrant,” says Angell. “For example, the M&G Global Dividend fund has had around 20 per cent exposure to the energy and materials sectors in recent years, including Gibson Energy (oil services) and Methanex (methanol supply/distribution).” The £1.7bn fund has been managed by Stuart Rhodes since launch in 2008. It is up 124.86 per cent over the past decade and is currently yielding 2.66 per cent. A passive choice: L&G Commodity Index Justin Onuekwusi, head of retail multi-asset funds at LGIM, notes trackers that invest directly in commodity indices have had a bad press of late. While he is currently neutrally invested, he believes commodities can play an important role over the long term and uses the L&G Commodity Index fund – which aims to track the Bloomberg Roll Select Commodity Index. “Trackers that don’t invest in near-term futures contracts have not been impacted by the negative near-term oil prices,” he says. “By investing outside energy markets in a range of commodities, the return streams are diversified across many sources.” TRUSTNET trustnet.com