Market volatility and a pervading sense of uncertainty this year have seen many investors extend their gaze beyond the traditional asset classes and look for more stable returns elsewhere. Alternative assets like property and commodities don’t tend to perform in line with stock markets, meaning they’re a good way to diversify your portfolio and uncover new revenue streams where performance is unlikely to corelate with bonds and equities.
For those of you who are new to alternatives, investing in them need not feel much different from any other fund you hold. With alternative funds becoming increasingly popular among private investors, there’s no need to buy the physical asset to gain exposure - as the following three Select 50 funds demonstrate, there are several ways to invest in alternatives where most of the hard work is done for you.
Despite a recent drop-off in enthusiasm for the precious metal, gold has been one of the standout assets over the course of the pandemic. Its outperformance this year shouldn’t come as a surprise - gold is perceived to be a reliable store of value, especially during difficult times.
There are several ways to gain exposure to the metal, and one of those is by investing in the shares of gold miners. Doing so can be a good way to capture the upside in the gold price because a miner will have relatively fixed costs, allowing a rise in the price of the metal to have a disproportionately large impact on their profits.
The Ninety One (formerly Investec) Global Gold Fund, managed by George Cheveley, aims to achieve long-term capital growth by investing primarily (at least two-thirds of the portfolio) in global gold mining companies, as well as in ETFs which invest in physical gold companies that mine for other precious metals.
Cheveley says it’s a combination of his direct experience working for so many years in the industry - before joining Ninety One, he was a market analyst at BHP Billiton, the world’s largest mining company - coupled with a “very disciplined process where we model companies bottom-up,” that gives his fund the edge.
That process involves assessing how companies manage their cash - as Cheveley explains, “Mining is very capital intensive. People invest a lot of capital, so what we focus on is companies who have made good returns on that capital; in other words, spent their money wisely and generated a lot of cash.”
Despite his bottom-up focus, he is well aware of the macro environment he is operating in - he looks to understand the outlook for gold prices, where risks lie, and which geographies present the best opportunities.
Infrastructure is unlikely to be the first alternative asset that springs to mind, and that’s partly because the opportunity base it offers covers a vast array of different investment options.
That’s certainly an aspect that appeals to Nick Scullion, manager of the FP Foresight UK Infrastructure Income fund, and his co-managers Mark Brennan and Carly Magee, who target a 5% annual income through an active portfolio of UK listed renewable energy and infrastructure investment companies.
As we’ve seen, investors look to alternative asset classes as a source of diversification, and the managers see this as central part of the fund’s objectives. As they explain: “The infrastructure asset class offers investors meaningful diversification from traditional alternatives as well as from equity and fixed income asset classes.”
But diversification is just one of several features the fund has to offer. In their eyes, another key advantage is the fund’s ability to protect against inflation, with many of their underlying holdings’ revenues directly linked to inflation.
The managers also feel that their fund is well suited to investors looking for stable, reliable sources of income. Partly that lies in their strategy of only investing in companies owning real assets, which helps manage volatility within the fund, and partly it lies in the nature of UK renewable energy and infrastructure - these are asset classes characterised by high barriers to entry and long term contracted revenue streams, and so typically make for steady income producers.
The team also operates with a keen ESG focus, offering investors the chance to support projects that provide essential services to communities and which are building for the transition to a greener economy.
Unlike infrastructure, buying a property has long been many people’s go-to alternative asset. That’s not surprising - when done well, investing in property can make for a reliable source of income and the prospect of sizable capital gain.
But there are risks attached - property is notoriously illiquid, meaning it can be difficult to withdraw your money when you want to, and pooling your investments into one underlying asset brings us back to the same concerns around diversification that we began with (not to mention it can be very expensive). Fortunately, there are now several ways you can invest in property that don’t rely on you owning any bricks or mortar.
The iShares Global Property Security Equity Index Fund provides one such option. This is a passive fund which invests in a range of real estate investment trusts (REITs) across the globe with the aim of matching the performance of listed real estate companies and REITs worldwide. REITs are themselves already well-diversified and give investors access to residential property as well as hotels, industrial units, office space and real estate holding companies.
Over half of the fund’s global exposure is to the US, with each component addressing distinct areas of the property market.
Its largest holding is Prologis, a California-based REIT which is the global leader in logistics real estate. It has a global reach, with its holdings accounting for approximately 963 million square feet spread across 19 countries.
In line with the index, the fund’s second most prominent country is Japan. Here, exposure among the top ten holdings comes through real estate developers Mitsui Fudosan and Mitsubishiss Estate, the largest in Japan.
For investors who are looking to access the property sector but who are also wary of putting all their eggs in one basket, the iShares Global Property Security Equity Index Fund offers low-cost, diversified access to the overall direction of global markets without taking big bets on a single property or sector.
Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. 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. Select 50 is not a personal recommendation to buy or sell a fund. 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 an authorised financial adviser.
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