FUND RESEARCH
downward trend (chart 2), should therefore not blind investors to the cumulative effect that a resurgence could have on the value of their wealth, even at relatively low levels. But what can they do about it? Chart 2: World Consumer Prices (% change)
The table below summarises four funds from our coverage list, which are also constituents of our Alternative Allocation and Alternative Income Managed Services. These aim to provide protection against future inflationary scenarios within portfolios. Please speak to your Investment Manager for more details on any of these strategies. Income & Growth
Growth
LondonMetric Property (LMP-LON)
Trojan Fund
Fund Type
Real Estate Inv Trust
Fund Type
Open Ended Inv Co
Asset Manager
Self-Managed
Manager(s)
Sebastian Lyon
12
Manager(s)
Andrew Jones & team
Fund Size
£5.28bn
10
Market Cap
£1.95bn
Ongoing Charges
0.87%
Historic Yield
4.0%
Historic Yield
0.5%
14
8 6 4 2 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
0
Source: World Bank.
Building defences From a portfolio perspective, businesses with strong pricing power (the ability to raise prices without sacrificing demand) can offer protection over long holding periods. Investors need to be ready to weather increased volatility, however, particularly amongst highly rated stocks, as market assumptions about the value of future cashflows are recalibrated. Aside from equities, other assets that have proven their worth in the past, albeit to an extent that is determined by the prevailing backdrop, include; property, infrastructure assets, commodities, inflation-protected securities (such as TIPS) and gold. The success, or failure, of investments in each of these areas will depend on a number of factors, including the specific drivers of inflation over a given period and how the response from monetary policy makers impacts real yields (the nominal yield on bonds minus the rate of inflation). Building a combination of differing strategies, therefore, seems to us to provide the best protection against a range of inflationary scenarios. These are exhibited, to varying degrees, by the four funds highlighted in the table opposite. ●
Key fund data and charts
LondonMetric’s strategic focus is on owning desirable real estate, aligned to sectors that are supported by structural trends. The portfolio is principally invested in distribution assets, from small urban logistics units to regional and mega distribution assets located on major arterial routes. Around two thirds of the related income is subject to contractual uplifts, with the remainder coming largely from urban logistics assets where constrained supply and strong demand is driving strong open market reviews. Risk Rating: 6
The Trojan Fund aims to achieve capital preservation and growth, in real terms, over the long term. The Fund can invest globally in equities, fixed interest securities and cash, as well as cash equivalents, including gold. The current allocation to inflation-protected government bonds and gold remains high as the management team believe that the fiscal and monetary tools used to stimulate the economy will become increasingly unorthodox. This suggests that real yields will continue to drop. Risk Rating: 4
Share price, total return (last five years)
NAV, total return (last five years)
200 180 160 140 120 100 80
2016
2017
2018
2019
2020
2021
Income & Growth
135 130 125 120 115 110 105 100 95 2016
2017
2018
2019
2020
2021
Absolute Return
3i infrastructure (3IN-LON)
PGIM Keynes Systematic Absolute Return
Fund Type
Investment Company
Fund Type
Open Ended Inv Co
Manager
3i Group
Manager
QMA Wadhwani
Market Cap
£2.63bn
Fund Size
£113m
Ongoing Charges
2.24%
Ongoing Charges
0.94%
Historic Yield
3.3%
Historic Yield
0.0%
This London-listed Investment Company aims for income and capital growth through a portfolio of unquoted infrastructure businesses and assets. The portfolio is focused on businesses that have a strong market position. This means they have an asset base that they own in perpetuity, operate within regulatory frameworks, or provide essential services and generate stable cash flows underpinned by long-term, often inflation linked, contracts. Risk Rating: 6
This absolute return fund aims for an attractive return on capital while attempting to limit the risk of loss. The strategy has a targeted return of LIBOR plus five percent, with volatility of seven percent and is one of the more agile and nimble we have under our research coverage. A focus on monetary policy and economic signals indicates that the fund is alert to emerging inflationary pressures and is positioned accordingly. Risk Rating: 5
Share price, total return (last five years)
NAV, total return (last five years)
210 200 190 180 170 160 150 140 130 120 110 100 90 2016
2017
2018
2019
2020
2021
140 135 130 125 120 115 110 105 100 95 90
2016
2017
2018
2019
2020
2021
All chart data source: Bloomberg. Chart data to 31 March 2021. For details of the Killik & Co risk rating system, please refer to page 15. Figures stated gross. Past performance does not guarantee future results.
Spring 2021 — 11
