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Specialist Sector

Specialist sector

The specialist sector encompasses funds focused on a wide variety of subsectors, from mining to agriculture to healthcare.

Josef Licsauer - Investment Analyst
22 June 2022

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 Shell (formerly known as 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

Our view

The performance of specialist areas of the market tends to come in waves – when a particular area is in favour it normally benefits 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.

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.

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.

Investment notes

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.

Wealth Shortlist Funds

Funds chosen by our analysts for their long-term performance potential.

See the Wealth Shortlist

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. Please remember that past performance is not a guide to the future.

Gold

Gold has been used as a store of value for thousands of years. This is 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. Some investors view gold as a 'safe haven' in times of economic distress and use it to help diversify a portfolio invested for the long-term. We’ve been witness to this more recently.

The ongoing conflict in Ukraine, combined with sanctions imposed on Russian products has put recession back on the cards for many countries. Rapidly rising inflation in many countries is also likely to slow economic growth and hamper recovery efforts following the pandemic.

These issues present a challenging backdrop for investors, so some have turned to gold as a way of diversifying their portfolio. The Gold price surpassed $2000 per ounce in March this year, shortly after Russia invaded Ukraine, but has since fallen back to around $1800. Wars aren’t usually sustained drivers of the gold price, but the added inflationary pressure has helped push it higher.

Some expect gold prices will remain around this level as investors seek refuge from these economic events. If the conflict in Ukraine and soaring inflation continue, it may remain higher for longer. Others feel it may fall to slightly lower levels over the next two years as interest rates rise, which can reduce the appeal of gold as an investment. Many central banks have already done this.

Technology

We think some of the most exciting companies on the stock market sit in the technology sector. They’re innovating at an unprecedented rate, and they’re not likely to slow down any time soon.

Technology companies performed well over 2021, owing to ongoing demand for things like online services, remote working and entertainment. However, performance hasn’t been as strong this year, with the broader global technology sector down nearly 17% so far (source: Lipper IM to 6 June 2022).

Many regions are experiencing high levels of inflation and rising interest rates. This can reduce the value of companies expected to grow a lot in the future, like those in the technology sector, as the present value of their future profits are worth less today. This is because they are discounted at a higher rate. We’ve also seen the higher pandemic induced demand drop off as economies are starting to open again.

The pandemic highlighted the importance technology plays in our daily lives. That said, we are seeing some investors gravitate towards sectors that are benefiting from rising rates and those offering some shelter from inflation, including companies in the financials or industrial sectors.

There are still plenty of smaller companies attempting to turn new technologies into profitable products, but they’re riskier than more established businesses. We believe a well-diversified portfolio should include exposure to many different sectors, investment styles, countries, and asset classes.

Energy

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.

Oil prices recovered from the drop off in 2020. Prices bounced back to almost $79 per barrel by the end of 2021, as economies started to recover from the pandemic. The price of Brent Crude Oil has continued to climb into 2022 surpassing $120 a barrel in early March, driven largely by the war-related trade and production disruptions.

There are still questions about the future of oil though. The possibility of a long-term slide in oil demand is the main concern – the so called 'peak oil' problem - which some suggest has been accelerated by the coronavirus. 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.

That said, many of the major oil & gas companies have upped spending on renewable technologies to help retain their dominant positions and achieve net zero targets. Some renewables are receiving more focus as well, including the expansion in wind and solar power.

An investment in the energy sector should be made with the long term in mind, and form a small part of a well-diversified portfolio.

Investment notes

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.

Here we provide comments on a selection of funds in the Specialist sector. They're provided for your interest but not a guide to how you should invest. You should only invest if a fund fits your investment goals and attitude to risk. For more information, please refer to the Key Investor Information for the specific fund. If you're unsure if an investment suits your circumstances seek personal advice. Comments are correct as at 31 May 2022.

Remember all investments can fall as well as rise in value so you could get back less than you invest. Past performance is not a guide to the future. Investors should be aware that the fund's highlighted below focus on a specific area which makes them higher risk options, so should only form a small part of a well-diversified portfolio.

There is a tiered charge to hold funds on the HL platform. It is a maximum of 0.45% a year - view our charges.

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.

Evy Hambro's been at the helm of this fund for more than a decade and has more than 25 years of industry experience. He's got the support of an experienced, well-resourced team, which includes co-manager Tom Holl.

Hambro is confident in his long-term outlook for the gold price. 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 exposure to smaller companies and emerging markets make it higher risk.

First Sentier Global Listed Infrastructure aims to deliver income and long-term capital growth by investing in companies from around the world that run or own infrastructure assets, including those in emerging markets, which adds risk.

The managers invest mainly in large companies including utilities, transport, energy and communications providers. Some utility providers, including water, gas and electric, are often able to pass on increasing costs to consumers, meaning some providers have held up well against rising inflation. People also need to heat and light their homes regardless of what's going on in the economy, so have the potential to hold up better than other businesses.

REITs, or real estate investment trusts, are also held in this fund. They invest in income producing properties, including cell towers, hotels, medical sites and warehouses. These can be an effective hedge against inflation because, for example, certain properties and landlords can increase rents in line with inflation.

While the fund contains a range of investments within the infrastructure sector, it’s concentrated. So each investment can contribute significantly to overall returns, but it can also increase risk. The fund’s charges are taken from capital, which can boost the yield, but reduce the potential for capital growth.

This fund aims to match the performance of the technology companies in the FTSE World Index. It invests in the shares of around 250 businesses.

This fund is fully replicated, so it invests in every technology company in the FTSE World Index. However, the fund’s top ten holdings make up over half of the portfolio. This means that a rise or fall in the value of an individual company can have a relatively large impact on the overall performance of the fund.

We think it’s a reasonable choice for broad exposure to some of the world’s leading technology businesses. Investors should be aware that the fund’s investments in emerging market companies adds risk.

Latest research updates

AXA Framlington Global Technology: January 2022 fund update

AXA Framlington Global Technology: January 2022 fund update

Fri 28 January 2022

Investment Analyst Josef Licsauer shares our analysis on the manager, process, culture, cost and performance of the AXA Framlington Global Technology fund.

Legal & General Global Technology Index: December 2021 fund update

Legal & General Global Technology Index: December 2021 fund update

Thu 23 December 2021

In this update, Passive Investment Analyst Alex Watkins shares our analysis on the manager, process, culture, cost and performance of the Legal & General Global Technology Index fund.

AXA Framlington Global Technology: January 2021 fund update

AXA Framlington Global Technology: January 2021 fund update

Fri 15 January 2021

Investment Analyst Josef Licsauer shares our analysis on the manager, process, culture, cost and performance of AXA Framlington Global Technology fund.

Legal & General Global Technology Index: December 2020

Legal & General Global Technology Index: December 2020

Tue 22 December 2020

In this update, Passive Investment Analyst Alex Watkins shares our analysis on the manager, process, culture, cost and performance of the Legal & General Global Technology Index fund.

First Sentier Global Listed Infrastructure - October 2020 fund update

First Sentier Global Listed Infrastructure - October 2020 fund update

Tue 06 October 2020

In this update, Investment Analyst Josef Licsauer shares our analysis on the managers, process, culture, cost and performance of the First Sentier Global Listed Infrastructure fund.

Investment notes

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.

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