Financial advisers have been searching for funds that can keep pace with soaring inflation while turning away from the tech-heavy growth strategies that led the market over the past decade, analysis by Trustnet suggests. 
The first half of 2022 is turning many long-term investment trends on their heads, with surging inflation pushing the Federal Reserve and other central banks to increase interest rates from their historic lows.
This, when combined with the Russia/Ukraine war, has caused markets to tank and up-ended fund performance tables. Given this, Trustnet looked to see if the funds that financial advisers spend their days researching has changed in recent months.
In order to do this, we compared the funds that financial advisers have been researching on Trustnet over the past three months with a baseline of the previous 12 months.
The results of this analysis show the £1bn JPM Natural Resources fund has been the biggest beneficiary of adviser research over the past three months. It is currently the 11th most researched fund by the advisers who use Trustnet, up from 103rd place over the baseline period.
Performance of fund vs sector and index over 2022
Source: FE Analytics
The fund, which is managed by Christopher Korpan and Veronika Lysogorskaya, has made 33.4% over 2022 so far, following the surge in the price of many commodities. This puts it in the second quartile of the IA Commodity/Natural Resources sector, where the average fund has made 14.9%.
JPM Natural Resources’ portfolio is a mix of energy commodities (oil & gas exploration and production companies are the biggest overweight, at 21% of assets), precious metal companies and other miners.
In an update last month, the managers said: “Both the mining and energy sectors have been out of favour with broader investors for an extended period. The development of new projects has been postponed or cancelled in favour of generous cash returns to shareholders in the form of buybacks and attractive dividends. This dynamic has led to an increasingly tight supply environment which will take time to unwind as spare capacity remains at low levels.
“Longer term, as populations continue to grow, demand for commodities will increase. A lack of investment due to years of lower pricing should lead to market deficits for the commodities we are invested in, leading to price appreciation.”
Financial advisers’ interest in natural resources funds can be seen in the table below, which shows the 30 funds that have been receiving a greater share of Trustnet pageviews over the past three months.
Source: Trustnet
Other commodities funds that have been getting more attention include BlackRock Gold & General and Ninety One Global Gold.
The inclusion of these funds suggests professional investors have been seeking out safe havens and inflation hedges – gold is a classic go-to asset for both purposes. Over 2022 so far, the yellow metal has risen around 8.5% (in sterling terms), compared with a 6.4% fall in the MSCI AC World index.
Funds that invest in agricultural commodities – such as Barings Global Agriculture – have also been researched more by advisers, reflecting higher food prices caused by bottlenecks in the global supply chain, poor harvests and the war in Ukraine (the country is a major food exporter).
The second fund on the above list shows how interest in passives continues to grow, even in the weak markets of 2022. Vanguard LifeStrategy 60% Equity was the most researched fund with the advisers who use Trustnet during the three months under consideration, highlighting its role at the core of many balanced portfolios.
Other passives that were getting researched more include Vanguard LifeStrategy 80% Equity, Vanguard FTSE U.K. All Share Index, Vanguard US Equity Index and Vanguard FTSE UK Equity Income Index.
Infrastructure funds are another common feature of the above list: M&G Global Listed Infrastructure and L&G Global Infrastructure Index were also getting looked at more by advisers.
This is another classic inflation hedge, as many infrastructure assets have a link to inflation through regulation, concession agreements or contracts. This allows them to increase prices in line with inflation.
However, it’s worth pointing out that more research isn’t always because investors are optimistic about a fund, as evidenced by the inclusion of Liontrust Russia on the list. This fund posted eye-watering losses after Russia invaded Ukraine and, like other funds focused on the country, is currently suspended from dealing.
Source: Trustnet
When looking at the funds that have been getting less attention from financial advisers, the reverse of the above trends is apparent.
Soaring inflation has forced central banks to start lifting interest rates from their historic lows and this has hit growth stocks hard. Growth investing had led the market for much of the past decade as investors were willing to pay up for future earnings, but higher interest rates make this less attractive and the market has rotated away from growth stocks.
Baillie Gifford has built a very strong long-term performance record through its application of growth investing, generating some spectacular returns for its investors and attracting steady inflows. However, the firm has been a high-profile casualty of the rotation away from growth stocks, causing its funds to fall to the bottom of the performance tables and investors to start looking elsewhere.