Specialist funds focus on a wide variety of sectors. They help investors get access to niche areas, which they might only have a small amount of exposure to through more generalist funds.
Specialist funds cover a broad range of themes, including:
- Energy - including major oil & gas producers, like BP, Exxon Mobil and Royal Dutch Shell, as well as much smaller exploration and production companies
- Infrastructure - these funds often invest in companies that own or operate infrastructure projects such as roads, railways or airports, or those that supply utilities like water or power
- Resources - funds that typically focus on companies that mine commodities, such as iron ore, gold, copper or diamonds. They might also invest in areas such as energy and agriculture
- Agriculture - provides exposure to companies that grow food such as corn, wheat or rice. Some funds provide broader exposure by investing in companies in the food production chain like fertiliser producers, distributors, or supermarkets
- Technology - funds focused on technology companies
- Other areas such as financials, healthcare, biotechnology, and even artificial intelligence
The performance of specialist areas of the market tends to come in waves – when a particular area is in favour it normally benefits all funds investing there, but the reverse is true too. This means you should be prepared to take a long term view and accept the associated volatility. Or you could try to invest when an area is out of favour and sell once it's back in favour and share prices have risen.
In reality we think trying to time the market is hard to get right. Plus our analysis shows it’s difficult for managers investing in a specialist area of the market to perform better than their benchmark through good stock picking – the ability to invest in companies with great growth prospects, no matter what geographical area or sector they’re in.
This means few specialist funds are contenders for the Wealth 50 list of our favourite funds. Many specialist funds perform similarly to, or underperform, their chosen benchmark. And some fund managers don’t have long enough track records to be considered for the list.
Specialist fund managers are constricted on where they can invest, but managers that run more diversified funds can choose if and when to increase exposure to a specific area. We think a balanced and broader portfolio of funds is likely to provide enough exposure to areas like oil & gas, healthcare, gold, and agriculture. Managers of more generalist funds can add to or reduce their investments in these areas when they feel it is most appropriate.
We think investors who want to invest in a specialist area should make sure it forms a small portion of a diversified portfolio.
Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.
There’s a wide variety of funds in the specialist sector, so focusing on the performance of the sector as a whole isn’t really relevant. Instead, we’ve highlighted a few areas of interest following our recent sector review.
Some of the most exciting companies on the stock market sit in the technology sector. They’re innovating at unprecedented rates, and they’re not likely to slow down any time soon.
The strong performance of the FAANGs (Facebook, Apple, Amazon, Netflix and Google) has attracted the interest of lots of investors in recent years, and they’ve generally been rewarded.
Their share prices have been more volatile over the past year and they’ve fallen in value over recent months, but technology companies have still performed better than the broader global stock market. There’s no guarantees this will continue though.
Some investors suggest higher share prices are justified because, in many cases, these businesses are profitable and generate good levels of cash. Other investors argue share prices have risen too far, too fast – if future earnings growth doesn’t meet investor expectations, their share prices could be vulnerable to a setback.
As well as the established giants, there are plenty of smaller companies trying to turn new technologies into profitable products. If successful, they’re unlikely to experience much initial competition and often enjoy fast growth but they’re higher risk than more established businesses.
Gold has been used as a store of value for thousands of years. And that’s still the case today.
When the stock market performs poorly, many investors turn to gold for security. That means the yellow metal’s price behaves differently to share prices. Over the past year for instance, stock markets have been volatile and ultimately lost money but the gold price has risen. Some investors use gold as a way to diversify a portfolio invested for long-term growth.
Funds in this sector tend to invest in companies with exposure to gold and other precious metals like mining and refinery businesses, rather than buying the precious metals themselves. The performance of these companies partly depends on the value of those metals increasing, but other things, like the success or failure of mining projects, will also have an impact. That means their performance can be volatile.
The energy sector includes the major oil & gas producers, like BP and Shell, as well as smaller exploration, production and renewable energy companies. The potential of some of these businesses is huge, but so is the risk.
We don’t have to look back far for a reminder of the risks. In October 2018, the price of a barrel of Brent Crude Oil reached $85.45. That fell to $59.46 by the end of November. The fall was mainly driven by a combination of too much supply and not enough demand.
Now there are questions being raised about the future of oil. The possibility of a long-term slide in oil demand is the main concern – the so called 'peak oil' problem. If oil demand falls because of the success of renewable alternatives, reserves of deep sea oil could become too expensive to extract, leaving behind billions of barrels of worthless oil.
The industry hasn’t stood still on the issue though. Many of the major oil & gas companies have upped spending on renewable technologies to help retain their dominant positions.
It goes without saying that an investment in the energy sector should be made with the long term in mind. And they should normally make up just a small part of a well-diversified portfolio.
Five year sector performance
Past performance is not a guide to future returns. Source: Lipper IM to 30/11/2018.
Specialist fund reviews
We suggest anyone who wants to invest in a high-risk specialist area should make sure it only accounts for a small proportion of their portfolio. Remember all investments can fall as well as rise in value so investors could get back less than they invest. Past performance is not a guide to the future.
Source for performance figures: Financial Express
This fund mainly invests in gold mining companies from across the globe. It also invests in some companies that mine other commodities, such as silver or diamonds. The manager can invest in smaller companies and emerging markets, which adds risk.
The gold price rose over the past year but the fund lost value and didn’t perform as well as the broader market of gold mining companies. Its poor performance was partly because of a focus on companies that finance precious metal businesses in exchange for the right to purchase future production at a discount. They’ve struggled recently because rising interest rates made the returns they get on their investments look less attractive to investors. Evy Hambro still sees plenty of potential in this area though, so he’s happy to hold on to his investments.
Over the longer term he expects rising incomes in emerging markets to fuel demand for gold products, such as jewellery, while the absence of large gold discoveries could constrain supply and lead to a rising gold price.
Invests in oil & gas companies and others that generate and transmit energy. Managers John Dodd and Richard Hulf tend to invest in quite a small number of companies which adds risk.
The fund outperformed the broader global energy market over the past year although performance has been more volatile in recent months. Long-term performance has been more lacklustre. Since launch in April 2011, the fund has underperformed its benchmark. Our analysis suggests the managers’ investments haven’t performed as well as other companies of a similar size and in the same sector.
In the long run, the managers think oil & gas prices will be driven by growing demand from China, although there are no guarantees. They have the flexibility to invest in smaller companies, emerging markets and derivatives. This increases risk.
This fund aims to match the performance of the technology companies in the FTSE World Index. It invests in the shares of more than 170 businesses.
This fund is fully replicated, so it invests in every technology company in the FTSE World Index. We think it’s a reasonable choice for broad exposure to some of the world’s leading technology businesses. The managers’ ability to use derivatives adds risk though.
Latest research updates
Please note the research updates are not personal recommendations to trade. If you are unsure of the suitability of an investment for your circumstances please seek advice. Remember all investments can fall as well as rise in value so investors could get back less than they invest.
Our expert research team provide regular updates on a wide range of funds.