YOUR PORTFOLIO
Drip-feeding
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
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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 /