Trustnet Magazine 84 May 2022 - Page 62


There is no reason why the current bear market will only last for the same amount of time as the dotcom bubble case , the end of the five-year period specified above brought you within touching distance of the financial crisis , when investors saw another fall of close to 40 %. Had you started drip-feeding your money into markets over 10 years instead of five at the height of the dotcom bubble , your £ 12,000 investment would have been worth £ 14,476 at the end of the period , a compound annual growth rate of 1.9 %. Had you invested £ 12,000 in an absolute return fund at the peak of the dotcom bubble , that 2.6 % annual growth rate would have turned it into £ 15,511.5 if held for the next 10 years .

The worst-case scenario Yet the bad news is that a 10-year bear market isn ’ t particularly excessive . Duncan MacInnes , manager of the Ruffer Investment Company , points out that while equities should in theory make the most money over the long term , this isn ’ t always the case . “ There have been long periods of time where stocks haven ’ t necessarily delivered the high single-digit returns the textbooks teach everyone they do ,” he says . “ The most famous example was in the US from 1966 until 1984 , 18 years where the stock market went nowhere .” He adds : “ Your starting point
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SECTOR PROFILE / 62 / in-demand metals – aluminium, copper, zinc and nickel – and we added oil, gas, corn and wheat following the invasion.” James Barton, chief executive of Featherstone, says his group has increased its exposure to commodities across its portfolios to about 23%. “For some time, we have felt it better to utilise commodities, especially industrial metals, as an offsetting asset class in the portfolio, rather than bonds,” Barton says. “We had an existing position in the most Wheat up Barton expects to see long-term price pressure, particularly in agricultural commodities, as Ukrainian production and supply chains are set to be affected for some time. Performance of sectors over 10yrs IA Commodity/Natural Resources (101.2%) IT Commodities & Natural Resources (-15.4%) 125% 100% 75% 50% 25% 0% -25% -50% ay 1 -75% The impartial view Of course, commodities managers are always going to talk up their asset class. But what do the asset allocators think? Ryan Hughes, head of investment research at AJ Bell, doesn’t have any direct exposure to the wider commodities sector, but he does have Back down to earth a specific allocation to oil & gas via the While the tail risks are skewed to the iShares S&P 500 Energy ETF. upside, Ross notes a pull-back in “This was added to portfolios in commodity prices is possible if the February 2021, so we have really situation in Ukraine de-escalates, managed to capture the pick-up in additional supply becomes available, the oil price over that period,” he says. or flows of natural resources are not “In addition to this, on the active side, significantly affected. a range of managers have exposure to “While global economic growth energy-related companies in both our is expected to decelerate in 2022, UK and overseas funds, including in above-trend global activity should the US and Asia.” support healthy commodities However, Hughes adds that this demand, while inflationary pressures exposure is relatively limited, given from the supply side of the economy that most active managers don’t like have the potential to pass through to the volatility associated with large oil prices,” he says. or mining weightings. “Looking further out, support “For investors looking to add now, for the asset class will come from it’s probably a case of don’t expect deglobalisation. We are in the early the kind of returns that we have seen stages of a fixed-asset investment over the past 12 months to repeat, but cycle linked to the green energy certainly exposure to commodities, transition, which will incrementally or commodity-related equities, has increase demand for many a place in a diversified portfolio,” he commodities over the next 10 years.” says. supply disruptions and lasting shifts in trade flows,” he says. “Port closures, self-imposed embargoes and trade-financing obstacles have directly affected the flow of commodities from the region, impacting spot markets.” Commodities Source: FE Analytics Issue 84 - May 2022 / 63 /