Investing in alternative assets - 7 funds to get you started

We are told that variety is the spice of life. In investing, however, variety keeps things nice and bland. Holding a range of assets smooths out returns over time and reduces the chance of loss, meaning it is one of the most sensible things you can do with your money.

Diversification is increasingly difficult to achieve, however. For many years, it was enough to split your portfolio between shares and bonds - commonly known as the 60/40 approach. But Fidelity’s investment director Tom Stevenson argues this ‘golden age’ is over, as equities and bonds have started to move in lockstep.

As a result, many people are turning to alternative assets - and our handpicked list of fund favourites, known as the Select 50, is a good a hunting ground.

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Infrastructure

Infrastructure is a straightforward way to diversify your portfolio. The asset class encompasses everything from toll roads and schools to windfarms and power grids and is popular with personal investors.

At least - it used to be. In the past three years, interest rates have wreaked havoc on returns. Infrastructure is a juicy source of income, meaning it is often viewed as a ‘bond proxy’. For many years, this worked in its favour: investors enjoyed steady dividends and projects were valued highly. When interest rates rose, however, the price of bonds fell - and infrastructure assets behaved in the same way.

This is painfully evident in the world of investment trusts. According to the Association of Investment Companies, infrastructure trusts currently trade on a share price discount of 17%¹. In other words, the market value of the trusts is significantly lower than the value of the assets they hold, due to weak investor demand. Before the Bank of England started hiking rates, many of the same trusts traded on a premium.

There is still a lot to like about this asset class, however. As well as paying generous dividends, it is typically non-cyclical and offers protection against inflation. This is because the revenues tend to be government-backed and inflation-linked.

Demand is also strong. In the UK, Labour wants to reverse years of underinvestment in schools, transport, energy and healthcare. Meanwhile, in the US, the Biden-era Inflation Reduction Act has pumped billions of dollars into clean energy - although the return of Donald Trump does cast doubt over future spending.

International Public Partnerships - the first of our Select 50 funds - invests in private infrastructure projects and companies. As its name suggests, these investments tend to be in partnership with the government and generate regular returns as a result.

Compared with trusts that dedicate all their resources to one sub-sector - like battery storage or wind power - International Public Partnerships takes a fairly broad approach. It has also grown its dividend every year since its IPO in 2006, and currently has a yield of about 7%². Please note this yield is not guaranteed.

The First Sentier Global Listed Infrastructure Fund is a different kettle of fish. This fund invests in large, listed utilities companies. National Grid is its fourth biggest holding, for example, while American electricity giant Duke Energy is its biggest position. The fund is skewed towards the US, unlike International Public Partnerships, which focuses mainly on the UK.

Gold

Gold has been glittering for the past two years. The ultimate ‘safe haven’ currently sits at about $3,350 per troy ounce, compared with $2,000 in July 2023, meaning it has outstripped almost every other asset class in this period.

There are a few ways to invest in the yellow metal. You can buy physical gold from the Royal Mint for as little as £100, for example. This comes with extra costs and complications, however, like insurance and storage. As a result, most people opt for financial instruments instead.

There are two main options here: you can gain exposure to gold price via an exchange traded fund (ETF), or you can invest in the companies that dig the metal out of the ground.

• Read: What is the best way to invest in gold - ETFs or gold miners?

The iShares Physical Gold ETC is a type of ETF. This means it is listed on the stock market and bought and sold like a share. The fund is passively managed and aims to track the gold price. This is complicated work - not least because the fund is guaranteed by actual gold bars deposited in a vault - but BlackRock has been running the strategy successfully for years.

Meanwhile, the Ninety One Global Gold Fund invests in gold miners. Miners tend to deliver more volatile returns, meaning they will sometimes do better than the gold price, and sometimes do worse - as shown in the graph below. 

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Before investing into a fund, please read the relevant key information document which contains important information about the fund. Eligibility to invest in a SIPP or ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. Withdrawals from a SIPP will not normally be possible until you reach age 55 (57 from 2028). Select 50 is not a personal recommendation to buy or sell a fund. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. An investment in a money market fund is different from an investment in deposits, as the principal invested in an money market fund is capable of fluctuation. Fidelity’s money market funds do not rely on external support for guaranteeing the liquidity of the money market funds or stabilising the NAV per unit or share. An investment in a money market fund is not guaranteed. Funds in the property sector invest in property and land. These can be difficult to sell so you may not be able to sell this investment when you want to. There may be a delay in acting on your instructions to sell your investment. The value of property is generally a matter of a valuer's opinion rather than fact. The shares in the International Public Partnerships investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice..