Adventurous investors wanting something different have often found themselves drawn to funds in the Investment Association’s Specialist sector. It contains an Aladdin’s Cave of weird and wonderful portfolios whose objectives mean they can’t easily find a home in the more mainstream areas.
These investment misfits have grown in number over the years – to such an extent that six new sectors were launched in September last year, reducing the numbers slightly in the IA Specialist sector from 332 to 261.
Here we take a closer look at the new sectors – and highlight some funds that may be worth considering.
IA Latin America – ASI Latin American Equity
The management team of this portfolio focuses on finding high-quality companies at attractive valuations that can be held for the long term. It also tries to maintain a diverse asset mix of countries, sectors and stocks, which is illustrated by the most recent fund factsheet.
Financials has the largest sector exposure, followed by materials and consumer staples. Other areas covered include industrials, energy, consumer discretionary, and tech.
The largest stock holding, meanwhile, is the 5.3% in Banco Bradesco, followed by the 5.1% in Petroleo Brasileiro.
IA India/Indian Subcontinent – Alquity Indian Subcontinent
India has been lauded as possibly the most exciting investment opportunity in a generation. With its young, educated, and motivated workforce, it is difficult to argue against and this fund is one of the most exposed to these trends. It is focused on tapping into the strong domestic Indian equity market and invests in companies lower down the market-cap spectrum than many of its peers.
The largest exposure currently is to software and services (18.1%), followed by banks, diversified financials, household products and automobiles. The largest holding is IT company Infosys and it’s worth noting that the no-compromise approach to environmental, social and governance (ESG) means that more than 30% of Indian companies are excluded from this fund’s universe – including one of the biggest index positions, Reliance Industries Limited.
IA Financials and Financial Innovation – Jupiter Financial Opportunities
This fund invests in companies that are linked to financial innovation in both developed and emerging markets. The manager prefers businesses with sustainable growth characteristics and identifies these with a thematic approach, which looks at the wider trends driving the economy and the impact these have on the financial services sector.
The largest stock weighting in the fund is the 5.7% in Signature Bank, a New York-based full-service commercial bank. Bank of America and Wells Fargo make up the rest of the top three.
Manager Guy de Blonay said recently that the pandemic has greatly accelerated the trend to online banking and payment systems.
“The rate of financial innovation has reached warp-speed proportions as the majority of consumer spending is now done online and cryptocurrencies are beginning to permeate into mainstream consumer behaviour,” he said.
IA Healthcare – Polar Capital Healthcare Opportunities
Manager Gareth Powell studied biotechnology at university and worked in the healthcare industry and academic laboratories before becoming a fund manager. He looks for themes in the market and identifies companies that are reasonably priced and with good growth prospects. The fund will generally hold less in the pharmaceutical sector than many of its rivals and is currently underweight the sector by some 23 percentage points.
The largest sector position is instead biotechnology, which accounts for 20% of the fund. Top 10 positions include Cytokinetics, which develops muscle activators as potential treatments for debilitating diseases, and Steris Corporation, a medical equipment company specialiaing in sterilisation and surgical products. And for those investors who prefer an investment trust structure, Powell also co-manages the Polar Capital Global Healthcare Trust.
IA Infrastructure – VT Gravis Clean Energy Income
This fund offers exposure to companies engaged in the provision, storage, supply and consumption of clean energy. According to Will Argent, the fund’s investment adviser, UK-listed renewable energy generators and energy infrastructure companies, which have published fourth-quarter full-year updates thus far in 2022, have pointed towards strong tailwinds for their businesses.
“For example, Greencoat UK Wind reported a robust 3.5% improvement in its NAV with firmer near-term UK electricity prices and cash generation driving the upgrade,” he said.
Dividing the portfolio by energy source, 42.7% is currently invested in wind, 32.4% in solar and 7.5% in hydro. Other allocations are to energy storage, natural gas, climate solutions, geothermal and biomass.
IA Commodity/Natural Resources – BlackRock GF World Mining
This fund invests in the securities of mining and metals companies globally, whose predominant economic activity is the production of base metals and industrial minerals such as iron ore and coal. It can also invest in gold and other precious metal companies, with 40% of assets currently in diversified miners, while the largest metal exposure is the 20.6% to copper.
Co-manager Olivia Markham told me recently she really likes the outlook for copper demand over the next five-to-20 years.
“It's all very much linked to the energy transition and the role that copper has to play in terms of electrifying the world,” she said. “Then similarly, on the supply side, this is an industry that's really struggled to bring new production into the market. Net-net, that points to a tight market for us, that we like.”
Darius McDermott is managing director at Chelsea Financial Services. The views expressed above are his own and should not be taken as investment advice.