With coronavirus uncertainty continuing to cloud the economic outlook and traditional asset classes looking increasingly volatile, there seem to be fewer uncorrelated opportunities for investors.
As such, many are turning to alternative assets, according to Fidelity Personal Investing’s Toby Sims.
He explained: “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 correlate with bonds and equities.
"With alternative funds becoming increasingly popular among private investors, there’s no need to buy the physical asset to gain exposure, there are several ways to invest in alternatives where most of the hard work is done for you.”
Below, he highlights three funds for investors looking to increase their exposure to alternatives.
Ninety One Global Gold
The product highlighted by Sims is the £359.7m Ninety One Global Gold fund overseen by FE fundinfo Alpha Manager George Cheveley.
“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,” said Sims. “Its outperformance this year shouldn’t come as a surprise – gold is perceived to be a reliable store of value, especially during difficult times.”
One of the ways that investors can gain exposure to the yellow metal is through the shares of gold miners, said Sims, where any rise in the price of the metal can have a “disproportionately large impact on their profits”.
Cheveley – a former market analyst at mining giant BHP Billiton – targets capital growth over a period of five years. He invests at least two-thirds of the fund in gold miners, with the remainder in miners of other precious metals.
He takes a bottom-up approach to investing, which involves assessing how companies manage their cash in what is a capital-intensive sector.
“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,” Sims added.
Performance of fund over 5yrs
Source: FE Analytics
Over the past five years, the fund has made 253.77 per cent (at 28 September). It has an ongoing charges figure (OCF) of 0.84 per cent.
FP Foresight UK Infrastructure Income
One asset class that’s unlikely to spring to mind for investors looking to make an initial foray into alternatives is infrastructure.
Nevertheless, the alternative asset class is one that covers a vast array of investment options, said Sims.
He recommends the £506.2m FP Foresight UK Infrastructure Income fund – overseen by Nick Scullion, Mark Brennan and Carly Magee – which targets a 5 per cent annual income by investing in UK-listed renewable energy and infrastructure investment companies.
The fund’s managers claim that as well as diversification, it also protects investors against rising prices with many of the underlying holdings’ revenues directly linked to inflation.
Sims said they also seek out stable and 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,” he said.
“These are asset classes characterised by high barriers to entry and long-term contracted revenue streams, and so typically make for steady income producers.”
Performance of fund over 3yrs
Source: FE Analytics
Over the past three years, FP Foresight UK Infrastructure Income has made a total return of 25.01 per cent. It has a yield of 5 per cent and an OCF of 0.65 per cent.
iShares Global Property Security Equity Index
Finally, Sims said for exposure to a more familiar alternative asset class – property – investors may want to consider a passive strategy in the shape of iShares Global Property Security Equity Index, which tracks the FTSE EPRA/Nareit Developed index.
A passive strategy can help investors access what is a “notoriously illiquid” asset class, he said.
“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,” he said.
“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.”
Sims added: “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.”
Performance of fund vs sector over 3yrs
Source: FE Analytics
Over three years, the iShares Global Property Security Equity Index fund has made a total return of 1.03 per cent, compared with a gain of 5.80 per cent for the average peer in the IA Property – Other sector. It has an OCF of 0.18 per cent.