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.”
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