James Davies, head of fund research at Chartwell Investment Management, uses the Investec Enhanced Natural Resources fund for his exposure to commodities.
"The reason we like it is the derivatives overlay, which reduces the worst parts of volatility. We want to gain exposure to the long-term commodities story but without short-term volatility. We also get exposure to a couple of different investment themes there as well in agriculture and precious metals," he said.
This, he adds, can be a useful way of inflation hedging. The commodities exposure forms part of Davies' long-term asset allocation and offers decorrelation with other asset classes.
Performance of Specialist Sector over 3-yrs
Source: Financial Express Analytics
Funds that appear in the Adviser Fund Index (AFI Index) that fit into this category include BlackRock Gold & General (manager Evy Hambro pictured right), a favourite for investors seeking to diversify assets away from the traditional equity and bond asset classes. First State Global Listed Infrastructure is another. The fund plays the global infrastructure theme, which continues to benefit from structural growth which is less dependent on the economic cycle and generates stable asset flows from assets providing essential services. Its lower correlation with other asset classes and long-life assets which can be used to match long-dated pension liabilities are further attractions.
Sarasin EquiSar Global Thematic is held across all three AFI indices. The fund seeks to capture the major trends driving economic and business prosperity, and has holdings which fall into five key themes: corporate restructuring identifies companies where value will be created either by soon-to-be-initiated internal programs, or due to external pressure; the strong get stronger theme looks for sector leaders able to fund their business and growth autonomously to gain a relative advantage over their competitors; intellectual property and excellence looks for companies with superior intellectual property embedded in the excellence of their people, products, process or distribution, particularly favouring those which dominate the research and development (R&D) of their industry; and pricing power as a theme seeks moments when a catalyst will trigger evidence of pricing power which will drive earnings and trigger a re-rating. Finally, the security of supply theme identifies opportunities created by consideration of national or corporate strategic necessities.
Over five years to 23 September 2010 the Sarasin fund has returned 34.5 per cent. This compares very favourably with, for example, the IMA Global Growth sector, which is up 23.1 per cent over the same period.
Ben Willis, head of research at Whitechurch Securities, believes there is a definite call for specialist-type funds.
"A couple we've held are either global themed funds or those where we want the expertise of the manager and it doesn't really fit anywhere else," he said.
Willis holds First State Global Listed Infrastructure, which, he says, is benefiting from sub-sectors such as airports, toll roads, energy supply and gas storage.
"We use that for two reasons: it's very low beta and it pays quite a comfortable dividend, and it's a growing theme in both emerging and developed markets."