The two-speed commodities play
This article first appeared on moneymarketing.co.uk on 28 September 2022 It really has been a...
Let me be the one to say it: no one knows what 2022 has in store for equity, bond, or even super markets.
Normally, you’d look at the global economic cycle and make an educated guess, based on the path of growth, jobs numbers, and inflation. But there are so many uncertainties in the world at the moment that it’s almost impossible to make a call.
As Mark Holman, CEO of TwentyFour Asset Management put it: “Essentially, we have policy makers still entrenched in very early cycle behaviour, the economy itself seems to be in mid-cycle, while valuations in many asset classes are already looking decidedly late-cycle”.
The only thing I can say with any certainty is that we are likely to be in for a period of volatility. At the time of writing, a new variant has only just been discovered and, until we know more, global markets will go up and down depending on whether the current news cycle has good or bad headlines.
If it’s very bad news I wouldn’t be surprised to see another fall in the first quarter like we had in February/March 2020. If it’s not as bad as people think, I believe then will be the time when we can give a more considered outlook.
I’d like to say that the UK is really cheap, so as well as private equity and overseas companies buying UK firms, so too should UK investors. But it’s not the time for one-way bets.
We’re in an environment that calls out for balance. As James Thomson, manager of Rathbone Global Opportunities, more eloquently put it, “We need a blend of reopening and pandemic winners, pro-cyclical and defensive, growth and value, reflation and resilience”.
If I have to pick a few asset classes you should probably make sure you hold then I’d go for gold and silver to hedge against central bank mistakes (which are a real possibility); financials which would benefit from rising inflation; high yield as it’s probably the only fixed income area that has the possibility of giving a real return after inflation; and mining as play on the transition to a cleaner economy – we need a whole load of metals to get electric vehicles on the road.
Funds to consider in these areas include: BlackRock World Mining Trust, Jupiter Gold & Silver or Ninety One Global Gold, Man GLG High Yield Opportunities or Baillie Gifford High Yield Bond, and GAM Star Credit Opportunities or Jupiter Financial Opportunities, depending on whether you prefer bonds or equity financials.
Above all else, stay invested, buy on the dips, and don’t try to be too clever.