Specialist funds focus on a wide variety of sectors. They help investors access niche areas, although they should usually only account for a small portion of your portfolio.
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 Shortlist, our list of funds chosen by our analysts for their long-term outperformance potential. 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 restricted 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. Please remember that past performance is not a guide to the future.
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 usually behaves differently to share prices. In recent months for instance, investors' concerns over geopolitical issues like America's rising tensions with China and Iran have caused the price of gold to spike. 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, also have an impact. That means their performance can be volatile.
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 but technology companies have still performed better than the broader global stock market. There are 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.
Infrastructure companies have appealed to many income-seeking investors in recent years. The regular dividends they pay have been highly sought-after in a world of low interest rates.
Performance was particularly strong over the past year as fears emerged over the slowing rate of global economic growth. When growth is expected to slow, it's less likely interest rates will rise in countries such as the US and UK. This makes the dividends paid by infrastructure assets look more attractive. Please remember that income is variable and not guaranteed.
It hasn’t all been plain sailing for infrastructure businesses though. In the UK for instance, political uncertainty caused volatility, particularly in the utilities sector. Investors' concerns ranged from the introduction of price caps to the Labour Party's plans to re-nationalise utility companies. Periods of volatility should not be ruled out in the infrastructure sector, especially given the potential for political interference.
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 aims to match the performance of the technology companies in the FTSE World Index. It invests in the shares of around 180 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.
This fund mainly invests in gold mining companies from across the globe. It also invests in companies that mine other commodities, such as silver or diamonds.
The fund delivered a good return over the past year, boosted by a spike in the gold price in recent months, although it didn’t do as well as the broader market of gold mining companies.
The manager remains confident about the fund's long-term prospects though. 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.
We think this fund is a reasonable choice for exposure to gold and companies sensitive to the gold price. But its focus on such a specialist area and exposure to smaller companies and emerging markets make it higher-risk.
This fund provides diversified, global exposure to the shares of companies that run or own infrastructure assets, such as toll roads, airports and utility suppliers.
The fund sits within the Global sector, although it specifically focuses on infrastructure-related companies. The managers look for companies they think can grow steadily and are difficult to compete with.
They're positive on the prospects for infrastructure companies over the long term. Mobile towers, for example, could do well as we increasingly communicate on the move, while urbanisation and increased traffic congestion could boost companies that own toll roads.
The fund tends to invest in relatively few companies and has the ability to invest in emerging markets, which increases risk. The fund’s charges are taken from capital, which can boost the yield, but reduce the potential for capital growth.
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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.