Financial advisers rarely recommend more specialised equity funds, but admit they can help to provide an additional level of diversification. Here are five specialised sectors, and their accompanying funds, that experts say look promising and can add an extra dimension to investors’ portfolios.
Infrastructure –
First State Global Listed Infrastructure
Rob Morgan (pictured), investment analyst at Hargreaves Lansdown, says this is a sector that often gets overlooked.
He points to the four crown-rated First State Global Listed Infrastructure fund, saying: "It acts like a global equity income fund. It focuses on really boring areas such as utilities and toll roads, but is good for investors seeking a bit more stability."
Chris Spear, managing director of Spear Financial, is also a big fan of the sector and the First State fund in particular, saying it is "head and shoulders above everyone else".
"First State are so good at preserving capital, they have proved that with their emerging markets and Asia Pacific funds."
"I also like the fact they are Aussie, which is a big commodities nation – there is something compelling about having the right people that really know the area they are working in," he added.
According to FE Analytics, First State Global Listed Infrastructure has returned 34.86 per cent since launch in October 2007, compared with 14.67 per cent from the IMA Global sector.
Performance of fund vs sector since launch
Source: FE Analytics
The fund requires a minimum investment of £1,000 and has a TER of 1.62 per cent. It is currently yielding 2.67 per cent.
Technology –
GLG Technology Equity
Another fund that Spear and Morgan both agree on is GLG Technology Equity.
"Technology has a lot of merits and everyone is a bit more grown up about it now than they were the last time around," Spear said.
"We realise everyone isn’t going to buy every single thing online – instead businesses are using the internet to make themselves more efficient."
"GLG Technology Equity is a fund I like in this area – the group has a habit of thinking outside the box."
Morgan added: "The managers of the GLG fund [Philip Pearson and Anthony Burton] have a decent record of getting the best total returns in this area."
FE Analytics data shows that the four crown-rated GLG Technology fund has returned 75.43 per cent over the past five years, compared with returns of 67.39 per cent from its IMA Technology & Telecoms sector and benchmark.
Performance of fund vs sector over 5 yrs
Source: FE Analytics
The fund is available through all the major platforms, allowing investors to dodge the £1,000,000 minimum initial outlay. It has a TER of 1.92 per cent.
Commodities –
Smith & Williamson Global Gold & Resources
BlackRock Gold & General
BlackRock Gold & General is Hargreaves Lansdown’s go-to fund for commodities, with Morgan saying: "It offers good diversification and exposure to both precious metals and general miners."
"But for the braver investor who is willing to invest for the long-term and who can stomach a bit more volatility, Smith & Williamson Global Gold & Resources is a lot more interesting."
"Because it targets small- and medium-sized producers and exploration companies, the risks are higher."
"Its performance hasn’t being good recently, but it has held up well compared with its peers in a very disappointing environment and it has a good long-term record."
"Also it is based in Canada, so its managers have good access to that commodities market."
Smith & Williamson Global Gold & Resources is down 23.55 per cent over the past year, yet has still outperformed four of the seven gold-focused portfolios in the IMA universe over this time.
BlackRock Gold & General has held up the best out of these, despite losses of 21.91 per cent.
Over five years the Smith & Williamson and BlackRock funds have returned 28.74 and 9.11 per cent respectively.
Performance of funds over 5 yrs
Source: FE Analytics
The Smith & Williamson fund requires a minimum investment of £1,000 and has a TER of 1.85 per cent; these figures are £500 and 1.94 per cent for BlackRock Gold & General.
Financials –
Invesco Perpetual Global Financial Capital
Spear says IFAs have a habit of taking big punts when it comes to their own money and that he is no different.
"I have about 70 per cent of my pension in Invesco Perpetual Global Financial Capital, which I have been building up over the past 12 to 18 months."
"If you are investing in a sector like this, you need managers you know you can trust and Paul Causer and Paul Read really fit this bill."
"Invesco Perpetual on the whole are very anti-banks, so it really said something to me when they launched this fund. Also, it was paying 7 per cent, so the income was in the bag."
Spear added that he is in the early stages of beginning to unwind some of this exposure.
According to FE Analytics, Invesco Perpetual Global Financial Capital has made 43.62 per cent since launch in January 2012. It has no specified benchmark and sits in the IMA Specialist sector, making comparisons with other funds difficult.
However, it has delivered almost triple the returns of the MSCI World index since launch.
Performance of fund vs index since launch
Source: FE Analytics
Fixed interest makes up 86.83 per cent of its AUM and equities just 13.63 per cent.
Invesco Perpetual Global Financial Capital has a TER of 1.57 per cent. It is currently yielding 6.64 per cent.
FE Trustnet recently highlighted the fund as being the second-best performer in the IMA universe in 2012.
Property –
First State Global Property Securities
HSBC Open Global Property
Charles Younes (pictured), analyst at FE Research, says that the search for income has led to increased interest in the property sector recently.
"Low yields on bonds caused people to increase their exposure to equities, but now they are beginning to look expensive and people are looking for other sources of income such as property," he said. "There has also been a bit of an upturn in the sector recently."
Younes points to two funds on the FE Select 100 list for anyone seeking access to property.
"First State Global Property Securities is managed according to local expertise – they have teams in the US, Europe and Asia, who all report back to a global manager who decides how to allocate its resources," he said.
Younes adds that while the management team has changed recently, a former manager has recently rejoined and that he has plenty of experience in the field.
"HSBC Open Global Property is another one. I like its fund-of-funds structure, which adds an extra layer of diversification."
"It has a similar process to the First State fund in that it relies on local teams that report back to a global manager, but it can also invest directly in bricks and mortar."
According to FE Analytics, First State Global Property Securities has returned 43.89 per cent over the past five years, compared with 18.04 per cent from the three crown-rated HSBC Open Global Property fund and a loss of 1.22 per cent from the IMA Property sector.
Performance of funds vs sector over 5 yrs
Source: FE Analytics
However, the First State fund has had to take on more volatility to achieve this, with an annualised score over the period of 22.61 per cent, compared with 13.14 per cent from the HSBC fund and 12.88 per cent from the sector.
The four crown-rated First State Global Property Securities fund requires a minimum investment of £1,000 and has a TER of 1.64 per cent. The figures are £1,000 and 2.2 per cent for the HSBC fund.