Last year was a “huge frustration” for BlackRock World Mining (LSE: BRWM), say managers Evy Hambro and Olivia Markham in their annual report. The trust produced a total return of -12.7% and a net asset value (NAV) return of -10.7% as its discount to NAV widened from 3.3% to 5.8% over the year.

This had little to do with the fundamentals for commodities. Gold and silver prices rallied by 27.2% and 21.5%, respectively, while copper prices increased 8%. However, this failed to translate into meaningful returns for mining stocks.

Losses were most pronounced at “large mining companies that simply did not perform as they have historically”. Take copper miner Freeport-McMoRan, which made up 4.4% of the portfolio at the end of the year. The stock lost 9.4% on a total return basis in 2024. Worse still, gold miners Newmont and Barrick generated double-digit losses, even though gold chalked up one of the best performances of any asset class last year.

Shifting away from mining

It’s not difficult to see why investors have moved away from the mining giants. The Magnificent Seven group of tech companies sucked in capital last year. While commodity prices jumped, rising operational and energy costs, political uncertainty and elevated interest rates all seemed to cloud the mining sector’s outlook.

The energy transition and exploding demand for artificial intelligence chips and data centres will almost certainly drive commodity prices such as copper high over the next few years. Still, mining is an incredibly hard business and is only getting harder as the easy-to-reach deposits dwindle.

However, it’s precisely these factors that make the sector look appealing in the long term. “Supportive demand trends, strong balance sheets, limited supply growth and low valuations are likely to underpin a recovery,” as Hambro and Markham put it. And BlackRock World Mining is almost uniquely positioned to manage the current uncertainty and profit when investor confidence returns.

Does BlackRock World Mining offer leveraged exposure?

The trust is well diversified. At the end of 2024, roughly 34% of the portfolio was allocated to global companies that produce a range of commodities. Just under 25% was allocated to investments specialising in copper and another 22% to those specialising in precious metals such as gold and silver.

However, the managers have taken full advantage of the investment trust structure. BRWM uses borrowing to improve returns – at the end of the year, gearing was 12%, although it had been as high as 14.7% at one point. And it invests in unquoted securities, which are 8.4% of the portfolio.

These unlisted assets include Vale debentures (2.7% of the portfolio), which entitles the trust to royalty payments from two mines operated by Brazilian giant Vale. Since these were acquired in 2019, the company has received all of its initial investment back in royalty payments, and the return stream is expected to grow over the coming years.

These alternative assets have provided a base for a healthy dividend. The trust declared total dividends of 23p per share for 2024, backed by 23.1p per share in revenue. Just under 70% of the revenue was generated by dividends from investments, with 10% from royalties, 20% from options trading and 1% from fixed income holdings.

Although the trust cut its dividend by 31% last year due to lower distributions from holding companies, it still yields an impressive 7.2%. The stock also trades at a near double-digit discount to NAV.

BlackRock World Mining is well positioned to capitalise on the sector’s recovery when it arrives. In the meantime, investors can collect a healthy, high single-digit yield backed by a diverse portfolio.

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The rise in the gold price ought to be very good news for gold miners. In theory, every dollar on the gold price goes straight to profits as mining costs are fixed. Gold-mining shares used to be regarded as a leveraged play on the gold price, amplifying the rise in the metal. In practice, it hasn’t worked out like that. The gold price has risen over 20% this year and 32% over one year to around $2,500 an ounce. The price is 40% higher than the peak reached 12 years ago. Yet the FTSE Gold Mining index stands nearly 30% below the level reached in late 2011.

Is the BlackRock World Mining Trust a good buy?

This doesn’t necessarily mean that gold-mining shares are a bargain. Miners are beset by rising costs, falling ore grades and government taxation and regulation, which means that their break-even gold prices rise steadily. For example, in the early 1990s South Africa was the world’s leading gold producer, accounting for 30% of global output. But today it is not even in the top ten. Output increased 12% in 2023, but that was 40% below the volume in 2010 and 90% below the level seen in 1970. 

Still, investors in global mining are at last making money. The £1bn BlackRock Gold and General Fund, managed by Evy Hambro and Tom Holl, has made investors no money since it launched in 2011, but it is up 17.5% in 2024. About 55% of the fund is invested in Canada, 31% in the US and 10% in Australia, showing a strong preference for safe and stable countries. Half of the fund is invested in large-caps with a market value above $10bn and 43% in mid-caps with values of $1bn-$10bn. Almost 90% is invested in gold miners and 10% in silver. The top ten holdings account for 59% of the portfolio and the top three, Newmont, Agnico Eagle Mines and Barrick Gold Corp, for almost a quarter. 

The fund is almost a mirror image of the $4bn BlackRock World Gold Fund, launched in 1994, but has considerably lower costs – 1.15% per annum versus 2.06%. That the World Gold Fund has returned an annualised 7.7% since its inception shows how abruptly the fortunes of gold miners changed in 2011; until then, the fund had multiplied sevenfold on a quadrupling of the gold price. If the gold price keeps climbing and the upward trajectory is deemed sustainable rather than the prelude to a nasty bear market, gold-mining shares should continue to perform, and even outperform the gold price. 

A safer option might be the £1.2bn BlackRock World Mining Trust (LSE: BRWM), also managed by Evy Hambro, but with Olivia Markham as co-manager. Almost 25% of its assets are invested in gold miners although there will also be gold production in the 35% invested in “diversified” miners. The proportion invested in gold varies depending on the managers’ view of the outlook, so the trust, which trades at around net asset value (NAV), should provide a smoother ride than a pure gold fund. At present, 24% of the fund is invested in copper, whose price rose strongly earlier this year, but has since fallen back. The trust is down 8% over one year and has returned just 4% over three, but 68% over five. So it is hardly riding the crest of a wave. The shares yield 6% to pay for the wait until the next boom. 

Hambro says that “constrained mined commodity supply, an evolving demand picture, strong balance sheets and valuations below historic averages make us optimistic about the outlook for the sector on a long-term view”. Cynics would point out that he is always optimistic. But his observation that “mining companies have focused on capital discipline in recent years, meaning they have opted to pay down debt, reduce costs and return capital to shareholders, rather than investing in production growth” is inarguable. The massive boom in demand driven by China between 2002 and 2011 is over, but other drivers of demand, such as infrastructure spending and renewable energy, are replacing it. Gold bulls will prefer BlackRock’s Gold & General fund, but World Mining is a compelling alternative.

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As the war for savers’ cash heats up, we’re seeing some interesting products come to the savings market. The Bank of England (BoE) has pushed interest rates up to 5.25% this year as it tries to bring inflation under control, and initially, lenders were slow to pass these hikes onto savers. That’s changing rapidly. You can now earn over 6% on one-year fixed savings accounts (or 6.2% from the government-backed savings provider NS&I), and if you want to put a little away every month, Nationwide’s regular saver comes with an 8% interest rate. 

However, while there’s been a lot of progress in the fixed savings market, rates on easy access accounts are, for the most part, lagging. 

Savers are set to benefit 

According to research from the personal finance app Plum, savers are missing out on £17bn a year in interest due to the fact banks have failed to pass the BoE’s full rate increases onto savers. In a survey of 2,000 people, Plum found the average interest rate on savings was just 3.3%, nearly two percentage points below the base rate. That may be an underestimate. 

Over the summer in its review of the UK’s cash savings market the FCA revealed £250bn worth of savings are sitting in low-interest accounts, earning nothing. 

To help consumers get more for their money, Plum has launched ‘Plum Interest,’ which it says will allow customers to “benefit more quickly and directly” from higher rates. With Plum Interest, the variable annual rate, inclusive of fees (more on that later), is 4.94%.

Plum Interest is backed by BlackRock’s money market fund. Money market funds invest in liquid cash-like securities, such as short-term government debt, which is considered a risk-free asset. They’re generally used by companies and wealthy individuals who want to earn interest on large cash balances with the funds backed up by guarantees from governments. 

These funds are also better at tracking interest rates as they reflect the true market rate, rather than the rate of interest a bank wants to give its customers. 

And while they’re usually used by wealthy individuals and companies, anyone can use money market funds. Most online brokers offer access to these products. Investment platforms interactive investor and Hargreaves Lansdown have both noted Royal London’s Short Term Money Market Fund has been one of the most bought funds by their clients this year. 

Almost all money market funds have a management fee, so you won’t get the exact rate of interest, and Plum’s charge is a bit higher than most. Its 4.94% yield includes “both the fund manager and provider charges totalling 0.25% in the UK”. 

As Victor Trokoudes, founder and CEO of Plum says, “Money market funds shouldn’t be just the preserve of the few who can afford to access them, so we’re making it easier for people to benefit from them.”

Users also get the benefits of saving through the Plum platform. Plum uses open banking to connect to your bank account (or accounts) and you can then set up savings goals, track spending, open different segregated savings accounts and even invest (for a fee). 

“With our Plum Interest product, you won’t have to worry about constantly switching banks to get a higher rate as the product tends to track changes in the central bank base rate,” notes Trokoudes. 

Growing number of options for savers  

The drawback here is money market fund rates are not fixed. They reflect the interest rate at the time, so if rates fall, the rate of return on the fund will fall as well. The rate can and will change overnight if the BoE acts. That’s something to be aware of if you’re looking to deposit your money in one. 

It’s not the only product on the market. Wise (Victor Trokoudes worked at Wise for three years as head of international and banking) uses a similar tool, with access to the same suite of BlackRock money market funds. Anyone who has an investment account can pick up a money market fund, some of which have lower fees. Royal London’s offering, for example, only charges 0.1%, although this excludes other platform fees so the comparison is not like for like. 

Still, Plum’s offering is a welcome addition to the savings market for consumers who are looking for ways to wake up their money. 

Blockchain is a relatively new financial technology (fintech) industry that has grown to be worth more than $1trn since the launch of the original cryptocurrency, Bitcoin, in 2009. “Crypto” refers to a type of mathematics called cryptography, which allows people to send and receive this digital-only cash in a very secure way. 

The world’s largest banks and asset managers such JPMorgan and BlackRock are now building products using blockchain, essentially a digital ledger, to speed up activities such as issuing bonds, or to settle financial transactions more quickly and efficiently. 

Our exchange-traded fund (ETF) buys shares in the top firms that derive a large proportion of their revenue from blockchain technology, bitcoin mining (the digital process whereby bitcoins are made), bitcoin custody or trading. 

Mining for profits 

Riot Platforms (Nasdaq: RIOT) is the second-largest publicly traded US bitcoin miner. It grew sales from $7.8m in 2018 to $259m in 2022. Data-centre hosting now comprises 12% of revenue, with engineering services contributing 22%. 

Bitcoin mining takes place in large data centres, often with thousands of computers running simultaneously, just like the warehouses that power Google or Microsoft’s cloud-computing services. The reward for bitcoin mining is very high, and there are many companies competing for limited space, which is why renting out parts of a data centre (which is known as “hosting”) to smaller bitcoin-mining businesses has become so lucrative in recent years. 

Prudent balance-sheet management means the company is debt free. Riot also has a market-leading profit-margin position. Its cost of production per bitcoin was $11,225 in 2022, and slid to $10,354 earlier this year. 

Former Twitter boss Jack Dorsey’s other company is payments firm Block (Nasdaq: SQ), formerly known as Square. The name change represents the company’s shift towards greater support of bitcoin infrastructure, including developing the Lightning Network to speed up settlements. Block is well placed to profit from Intel’s 2023 exit of the bitcoin-mining sector and has invested heavily in research and development (R&D) to produce power-efficient five-nanometre semiconductors. Block comprises four divisions: CashApp, a mobile payment service; music-streaming service Tidal; payments processor Square; and bitcoin R&D firm Spiral.

Block’s biggest profit generator is CashApp, which has 51 million users and produced $2.95bn in gross profit in 2022, its highest to date. In the first quarter of 2023, CashApp reported $2.16bn in sales from users buying and selling bitcoin. Analysts forecast earnings-per-share growth of 175% and $1.05bn in net profit for Block in 2023, which would give the company an attractive price-to-earnings growth ratio of 0.5. 

Microstrategy’s big potential

CEO Michael Saylor made his fortune with MicroStrategy (Nasdaq: MSTR), his $2.8bn enterprise-analytics software and cloud-services company. His long-term legacy, though, is likely to focus more on the group being the largest single bitcoin-holding firm in the world, having added 140,000 bitcoins (worth $3.77bn) to its balance sheet since August 2020. 

MicroStrategy follows the equivalent of a dollar cost-averaging investment strategy, converting a portion of its free cash flow for purchases as well as issuing debt to buy bitcoin. The software side of the business remains in rude health. The stock jumped recently following a multiyear deal to integrate its AI-based analytics into Microsoft 365 and Azure, the second-largest cloud platform behind Amazon Web Services. 

The consultancy McKinsey estimates that $150bn was spent on cybersecurity in 2021, says Omar Moufti, product strategist for thematic and sector exchange-traded funds (ETFs) at BlackRock. And with other projections putting the global cost of cybercrime “in the trillions of dollars per year”, the sector is clearly set to become far bigger.

Cybersecurity is becoming a big issue for consumers

The main reason cybersecurity has become a key trend is “the rapidly growing reliance on digital technologies and the internet”, says Moufti.

Throw in the advent of gangs of cybercriminals, many implicitly or explicitly supported by various rogue states such as Russia and North Korea, and it’s not surprising that there has been “a large increase in the frequency of cyberattacks”.

At the same time, “consumers are becoming more aware of the value of their personal data and the risks associated with online activities, such as data breaches and cyberattacks”, says Moufti.

Surveys suggest that “84% of consumers say they want more control over how their data is being used while more than 90% of consumers in the US are calling for a more proactive approach by companies” to protect data.

Steve Wreford, portfolio manager of the Global Thematic Focus Fund at Lazard Asset Management, believes that the sophistication and variety of cyberthreats now emerging means that investing in companies that provide a single cybersecurity product might not the only, or even the best, way to benefit from booming demand.

While many of these companies may “seem exciting as they enter the market”, they may not necessarily “represent the most compelling opportunities”. This is because “there always seems to be a new problem or technological shift around the corner that can make their current offerings obsolete”. Instead, the real winners might be those “who can sell multiple cybersecurity-related products and services” to the growing number of companies who want to save time and money by subcontracting their defence against digital threats to someone with experience and resources, says Wotton.

The cybersecurity stocks to buy

If you want to invest in a broad range of cybersecurity companies, then you should consider an exchange-traded fund (ETF) such as the iShares Digital Security UCITS ETF (LSE: LOCK). It invests in more than 100 outfits involved in digital security.

The three largest holdings are cloud-computing company Nutanix, networking group Arista Networks and software giant Oracle. The ETF has a trailing price/earnings (p/e) ratio of 24.7 and a total expense ratio (TER) of 0.4%.

A more concentrated alternative is the L&G Cyber Security UCITS ETF (LSE: ISPY). This has only 49 holdings, with the largest being BlackBerry, now a cybersecurity specialist, and its peers Cloudflare and Paolo Alto Networks. This ETF has a slightly higher TER of 0.69%.

One cybersecurity firm that is a major holding in both ETFs is Paolo Alto Networks (Nasdaq: PANW). Operating around the world, it provides a range of cybersecurity services, including software and consulting. It is investing heavily in next-generation security technology, incorporating both artificial intelligence and zero-trust principles, and is planning to launch several pieces of software this year. The fact that it trades at 41 times 2024 earnings is reasonable given that it has more than doubled sales over the past four years and is expected to keep growing at an annual 25%-30% over the next few years.

Another company with a good reputation is Fortinet (Nasdaq: FTNT), which provides cybersecurity and cryptographic services to more than 635,000 clients. While its cybersecurity offerings cover everything from networks to mobile devices, Fortinet’s main product is FortiGate, a firewall that prevents hackers breaking into a network.

Not only have sales more than doubled over the past three years, but they are also expected to keep growing by around 25% a year. Both operating margins and the return on capital, a key gauge of profitability, remain strong. Fortinet trades on a 2024 p/e of 36.

Akamai Technologies (Nasdaq: AKAM) provides cloud-computing services, running a network of servers in order to rent out the capacity to firms. While it is not a specialist cybersecurity company, it has invested heavily in this area, buying a range of operators in recent years, including Guardicore, which specialises in zero-trust security, and mobile-security provider Asavie. Akamai’s sales are growing by 8% a year and it trades on a 2024 p/e of just 12.

A British leader in cybersecurity

One of the most renowned British cybersecurity companies is Darktrace (LSE: DARK).

Gresham House’s Ken Wotton is impressed by its “cutting-edge” technology that uses AI to preempt potential threats by detecting unusual behaviour from within customers’ networks and devices. It has already amassed several prominent companies as clients, including insurer and asset manager Allianz, manufacturing company Airbus and parcel-delivery firm DPD.

While it trades at 46 times 2024 earnings, this is justified by the fact that its revenue is expanding by around 30% a year.

Another interesting option that Wotton likes is NCC Group (LSE: NCC), which provides security, escrow and business continuity services. He is particularly impressed by the fact that NCC not only sells cybersecurity software, but also provides “well-trained consultants” to help firms spot and mitigate threats from hackers.

NCC has more than 14,000 customers in 135 countries and its revenue is growing at a solid rate of around 8% a year, with healthy profit margins and a return on capital of just under 10% a year. Yet it is on just 13.3 times 2024 earnings and yields 3.6%.

The gold price has hit a six-month high amid expectations that interest rate rises are over and may even be cut.

The yellow metal has hit a new six-month high of $2,013 an ounce and it is moving in on an all-time peak level of $2,075.

Gold can be a great way to build diversification and protection into a portfolio.

MoneyWeek writer Dominic Frisby has pointed out several times in the past, gold has been money “forever” and is likely to retain this title, which makes it a good hedge against periods of economic or political upheaval.

Tom Stevenson, investment director, personal investing at Fidelity International, says gold would normally be expected to underperform in an environment of high interest rates because it does not pay investors an income.

That makes it relatively unattractive when a decent yield is available from other lower risk assets like bonds and cash.

But there are different fundamentals driving demand.

“The expectation that interest rates are poised to fall back again in 2024 is reducing the opportunity cost of holding gold.,” says Stevenson.

“At the same time, a weakening dollar is reducing its cost to buyers in other currencies. Finally, gold is benefiting from its safe haven reputation at a time of heightened geo-political uncertainty.”

There are really three ways investors can get exposure to gold in their portfolios: they can buy physical gold, buy gold miners, or buy a fund that focuses on both.

There are benefits and drawbacks to all of these approaches.

Owning physical gold can come with significant costs such as storage fees and insurance.

Using an ETF (exchange-traded fund) can cut these costs and make it easier to buy and sell – and you won’t have to store it yourself – but it won’t eliminate the drawbacks entirely.

There are usually management fees to pay and because gold doesn’t generate any cash flow, there’s no chance of a dividend.

Picking mining stocks has its own set of challenges. These companies quite literally mint money, but they’ve struggled to turn that money into shareholder value. The challenge is, mining can be unpredictable.

Still, miners, especially the big established players, tend to offer a dividend. That’s favourable to the charges that come with owning physical gold.

One favourite method for getting exposure to gold is to use funds, specifically, investment trusts. 

Funds that specialise in gold and gold miners

The BlackRock World Mining Trust’s objective is to provide a “diversified investment in mining and metal assets worldwide”.

It offers exposure not only to gold miners but also to other key resources such as copper and iron ore.

Considering the role copper plays in the global economy, it makes a lot of sense for investors to have some exposure to this metal as well as gold. However, it’s not as sought after as gold as a store of value (gold is a byproduct of copper mining).

As well as equity investments, the trust is also able to buy other assets to build exposure to the mining sector. Josef Licsauer, investment analyst at Hargreaves Lansdown notes, “a smaller portion of the trust is dedicated to bonds, debentures (a type of bond or debt instrument) and certain royalties”.

The World Mining Trust is managed by Evy Hambro, who has 25 years of experience investing in the mining industry. And with the World Mining Trust, Hambro has the flexibility to invest where he believes the best returns can be found.

“The managers attempt to identify the biggest trends or themes in the industry to help work out areas of opportunity in the market. Some of the more recent trends, electric vehicles and transition to clean energy for example, saw the managers increase their investments in certain precious metals,” Licsauer says.

Hambro also manages BlackRock Gold & General. This fund aims to “grow investors’ money over the long term by investing primarily in gold mining companies from across the globe,” as Licsauer explains.

“Hambro is confident in his long-term outlook for the gold price, expecting 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,” the analyst adds.

Ruffer Investment Company also offers a specialist gold fund, LF Ruffer Gold Fund. Like Gold & General, it concentrates on gold mining stocks. With an ongoing charge of 1.5%, it’s a bit pricey although its accumulation shares have returned 94.1% over the past five years – so perhaps you get what you pay for.

Lastly, two smaller unique funds are Jupiter Gold & Silver and Golden Prospect Precious Metals Limited. Both focus on gold equities, but have a mixed record.

All of these funds offer exposure to gold and gold miners. Some are more diversified with a better record than others.

How to buy physical gold

If, unlike me, you’d rather invest in physical gold, then ETFs are a great way to own the metal without having to worry about carting around huge lumps of gold.

The iShares Physical Gold ETC tracks the gold spot price and is one of the cheapest products on the market for tracking the gold price.

As Licsauer explains, “This ETC only accepts gold that meets the London Bullion Market Association (LBMA) Good Delivery rules and the LBMA’s Responsible Sourcing Programme, making sure that 100% of the gold bullion backing the ETC is responsibly sourced. With an ongoing charge of 0.12%, it’s also competitively priced in the market versus its competitors. Exposure to the metal is an attractive option for those who want to diversify their portfolios or who believe that the price of gold will rise in the future.”

Index and tracker funds are a multi-trillion dollar market, letting investors replicate the performance of a particular market or asset class – but how do they work?

Index funds have been around for decades. They are a low-cost way to diversify a portfolio or gain exposure to a sector or theme. Index trackers are often among DIY investors’ top fund picks as they offer value for money, low fees and reliable market-level performance.

They replicate a specific market index, such as the FTSE All-World or the FTSE 100, by holding all or a representative sample of the stocks or bonds within that index.

“Rather than attempting to beat the market, index funds aim to match it, offering predictable returns and minimal management costs,” says James Norton, head of retirement and investments at Vanguard Europe. As such, they represent a passive as opposed to active investment style.

The first ever index fund that was available to retail investors was the Vanguard 500 Fund, introduced in 1976 by Vanguard’s founder John ‘Jack’ Bogle. Bogle is often viewed as a pioneer of index investing, and nearly 50 years on the Vanguard 500 Fund still tracks the returns of the S&P 500.

They have stood the test of time, with index-tracking equity funds registering net retail inflows of £1.1 billion in January 2026 according to data from the Investment Association. They are popular both with beginner investors and with more experienced hands as they provide convenient exposure to a wide variety of assets.

Advantages and disadvantages of index funds

There are four key benefits of index funds, according to Norton. These are:

Low cost: By avoiding the high fees often associated with active management, index funds help investors retain more of their returns.

“In many areas of life, higher costs are correlated to a better product,” says Norton. “However, with investing, high cost is simply a hurdle for the manager to beat simply to break even. Data suggests that index funds outperform more expensive active funds over both the short and longer-term.”

Diversification: Broad exposure across sectors and geographies helps manage risk effectively. Investors who hold a diversely-invested index fund will by default own the best performing stocks. As Jack Bogle said, “Don’t look for the needle in the haystack, just buy the haystack.”

Transparency: With index funds, investors know exactly what they own and how it performs.

Discipline: Index funds encourage long-term investing and reduce the temptation to try to time the market.

However, Norton adds that investors should consider the following principles when investing using index funds:

• Define clear goals: Align investments with long-term objectives.
• Maintain balance: Diversify across asset classes and regions.
• Minimise costs: Prioritise low-fee index funds to maximise net returns.
• Stay disciplined: Avoid reactive decisions during market fluctuations.

What makes index funds reliable?

Index funds track an index of assets (which is why they are often referred to as ‘tracker funds’). As long as they are managed correctly, their returns will always match those of this ‘benchmark’ index.

That makes them a relatively reliable way of gaining exposure to a given market or theme, as long as the underlying index is a good representation of the market. The fund manager will ensure that the mix of assets within the portfolio reflects those in the benchmark index.

This is in contrast to active funds, where the fund manager will proactively buy and sell assets into and out of the portfolio in an attempt to outperform the benchmark.

In theory, that means investors can realise higher returns by investing in active funds than index funds for equivalent sectors, but that often doesn’t happen in reality. AJ Bell’s latest Manager versus Machine report found that just 24% of active funds outperformed a passive alternative during the 10 years to 30 November 2025.

So if investors want to allocate a portion of their portfolio to match the returns of the global stock market, their most reliable option would be a global equities index fund (tracking, for example, the MSCI World Index).

Index funds are, however, subject to ‘tracking error’, which refers to the variance between their returns and those of the benchmark index.

“Investors should check how tightly the fund tracks its index,” says Dan Moczulski, managing director at eToro UK. “The lower the tracking error, the better.”

The most popular index funds to buy now

During the first two months of 2026, these were the most popular index funds among AJ Bell’s DIY investors:

^{Source: AJ Bell, Dodl. Based on net buys during January and February 2026.}

While the list includes two S&P 500 trackers and five global stock market trackers, there is also the L&G Global Technology Index Trust which is one example of how index funds can be used to gain exposure to a specific sector or theme. The fund tracks the FTSE World - Technology Index, and as such offers investors exposure to a global selection of technology stocks.

These are the most-traded shares across UK markets last week. The figures provide a great insight into the way investors are thinking and where there could be opportunities.

While this information is only a small sample of the UK stockmarket, it can provide a great starting point for further research.

Most-bought blue-chip stocks

Top five most bought FTSE 100 shares according to the UK’s largest online stockbroker, Hargreaves Lansdown:

The most-bought list of FTSE 100 stocks has been dominated by resource companies in recent weeks. However, last week it seems there was a big change in investor sentiment.

Commodity stocks are now seemingly out of favour. They’ve been replaced by blue-chip utilities, telecom, healthcare and retail.

Water is one of the market’s most defensive sectors. Not only is there always a demand for water, but most companies have a monopoly over the regions they operate. They’re also usually able to hike bills in line with inflation. This makes them the perfect stocks to own to weather inflationary forces, which might explain why United Utilities was one of the most-bought FTSE 100 stocks last week.

GSK and Haleon also proved popular following sudden share price falls. Both companies are exposed to litigation related to the heartburn drug Zantac. This could lump the companies with multi-billion dollar legal bills, and the market has been selling the stocks rather than risk exposure to rising costs.

Most-bought small and mid-cap stocks

The most-bought non-blue-chip stocks on the Freetrade, IG Group and Hargreaves Lansdown platforms in no particular order:

It was a quiet week for small and mid-cap stocks last week.

Revolution Beauty Group bucked the trend, earning itself a place on the list of the most-bought stocks even though the firm warned investors that it could have to restate its financial position.

In a trading update published on 11 August, the company told investors that its auditors have “raised certain accounting issues with management,” in preparation of its accounts for the period ending 28 February.

The update noted that these issues could “have a material impact on the results,” although it is confident that its financial position reported at the end of July (net debt of £21.2m) is reliable and there’s plenty of headroom on its borrowing facilities to provide “sufficient liquidity” for the future.

Most-bought investment trusts

Top five most bought investment trusts according to Barclays Smart Investor:

Scottish Mortgage remained the most popular investment trust on the Barclays Smart Investor platform. But the others on the list suggest investors are preparing for a period of prolonged uncertainty, and they seem to be sheltering in trusts with exposure to green energy.

Greencoat UK Wind owns and operates a portfolio of wind farms around the UK. Meanwhile, the Renewables Infrastructure Group owns and operates a portfolio of renewable energy assets. In an increasingly uncertain economic climate, with rising hydrocarbon prices, money is flooding into green energy assets, which have the potential to offer secure, inflation-linked returns as well as a steady income for investors.

Sources:

https://www.hl.co.uk/shares/top-of-the-stocks

https://www.ig.com/uk/shares/most-traded-stocks-uk

https://freetrade.io/most-traded-shares#uk-most-traded-shares

https://www.barclays.co.uk/smart-investor/investments/most-popular/investment-trusts/

SEE ALSO:

Britain’s ten most-hated shares

Director dealings what company insiders are buying and selling

Abrdn plc (LSE: ABDN) currently offers one of the highest dividend yields in the FTSE 100. The company, formerly known as Standard Life Aberdeen plc, yields 8.4% based on Refinitiv analyst estimates.

It pays to be sceptical of high dividend yields and in this case, there’s clear evidence that this might not be sustainable. The company’s dividend cover – the ratio of earnings per share divided by the dividend payout – stands at 0.7 on a forward basis suggesting the firm is paying out more than it can afford – a clear red flag for income investors.

That said, dividend cover is a simplistic metric and it’s generally not wise to put too much weight on any one figure.

So before we get into whether or not the company’s dividend is sustainable, let’s take a step back and look at where revenue comes from.

Abrdn has been struggling to grow in a competitive market

Abrdn’s business is, to quote the awful corporat-ese, “structured around three vectors”. These are “investment solutions”, “adviser solutions” and “personal wealth services”.

Since selling its life assurance, pensions and long-term savings arm in 2018, abrdn has been focusing on growing its wealth management businesses, which tend to have higher profit margins, fewer regulatory constraints and reduced capital requirements.

Trouble is, wealth management is a highly competitive industry with many giant asset managers around the world all fighting for market share. The London-listed company is up against the likes of American giant Blackrock (NYSE: BLK) and FTSE 100 peer Schroders (LSE: SDR). Both of these firm’s have a wider global reach and a bigger pool of client assets.

Despite management’s best attempts, abrdn is really struggling to grab market share. AUMA (assets under management and administration) fell to £508bn the first half of 2022, compared with £542bn last year - that’s even after including assets from the group’s recent acquisition of trading platform Interactive Investor (ii).

The drop was driven largely by the final stage of the withdrawal of Lloyds Bank’s (LSE: LLOY) vast Scottish Widows portfolio. The bank announced that it was pulling this mandate from abrdn in 2018, three years earlier than contracted, due to conflicts of interest. After a lengthy legal spat, abrdn was allowed to continue managing £35bn of the £109bn Scottish Widows portfolio with the rest being split between BlackRock and Schroders.

Even after stripping out this large outflow, AUMA still dropped overall.

The dividend may be more affordable than it looks at first glance

Earlier in this article I mentioned that abrdn’s earnings per share are not enough to cover its dividends, and that’s true – but not on management’s preferred measure of profit.

The firm’s annual report notes that in 2021 adjusted operating profit totalled £323m (fee income minus expenses) generating adjusted earnings per share of 13.7p against a dividend payout of 14.6p.

However, adjusted capital generation, which shows how adjusted profit contributes to regulatory capital, totalled £366m for the year. On this basis, the dividend payout is covered 1.2 times. Management sets the dividend based on this figure, not the adjusted operating profit number outlined above.

If this all seems a little complicated, you’re right – it is. There are lots of moving parts here and to add to the confusion, abrdn also reports its IFRS profit before tax measure, which includes items such as restructuring costs and profit on disposal of interests.

On this metric, the company earned £1.1bn in 2021 mainly thanks to investment gains on the group’s share of Indian life insurance group HDFC Asset Management and interest in Phoenix (received as part of the sale in 2018). However, this figure is highly volatile. For the first half of 2022, the group’s IFRS loss before tax amounted to £320m. This reflected losses on abrdn’s listed investments (undoing a chunk of the IFRS profits earned last year).

Market conditions are also having another impact on the group’s bottom line. As part of its shift towards wealth management, the company has become increasingly reliant on trading and management fee income generated on investors’ assets. As volatility has increased, investors have pulled back, leading to reduced fee income (and the value of their portfolios has declined hitting management fee income). As a result of this double headwind, group fee based revenue slumped 8% during the first half of 2022.

This soup of numbers might not mean much to all readers, but what it shows is that while abdrn might be making enough money to cover its dividend today, there’s no guarantee this will continue.

No immediate threat, but it’s hard to tell what happens in the long term

Overall, I don’t think abrdn’s dividend is really under threat today. The company is generating enough capital to cover the distribution (including asset sales and regulatory capital adjustments) and that’s what matters in the short term.

It’s the longer term I’m concerned about. Abrdn needs to attract new investors to grow AUMA and fees. It’s not clear it will be able to do that in the highly competitive wealth and fund management industry. It may even have to cut fees charged to clients to remain competitive.

Analysts appear to agree. Since the beginning of this year the average Refinitiv analyst estimate for 2022 earnings has been revised lower by 30%. With that being the case it’s not really surprising that the stock has fallen 29% over the past six months.

The big question is, if abrdn can’t grow earnings, how will it be able to grow its dividend in the long-run? That’s a question I can’t answer. As such, while I don’t think abrdn’s dividend is at risk of being cut today, I wouldn’t want to add the shares to my portfolio. I think there are other companies out there with better growth prospects and more attractive valuations.

After all, there’s more to investing than dividends. Capital growth is also a key component of the equation.

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Until two years ago European Opportunities Trust (LSE: EOT), managed by Alex Darwall, was the star performer of the European sector. However, the collapse of Wirecard, its largest holding at 13% of the portfolio, was a devastating blow to the trust and to Darwall’s reputation.

What made the fiasco worse was not just the size of the holding, but also that Darwall ignored repeated dire warnings in the Financial Times of corporate misfeasance following a detailed investigation. Although he extricated some value by bailing out at the last minute, Darwall’s reputation suffered a devastating blow.

BlackRock Greater Europe (LSE: BRGE) moved up to pole position in the performance table and has remained there. The £550m trust has returned 63% over the last five years and trades at a 7% discount to net asset value (NAV). However, its growth focus has held it back over the last 12 months, in which it has lost 15%.

Meanwhile, European Opportunities Trust, with nearly £1bn of assets, has bounced back, returning 4%. It’s second only to the £1.3bn Fidelity European (LSE: FEV), which added 5%. Fidelity European, which trades on an 8% discount, has been a consistent strong performer since its launch over 30 years ago, returning 55% over the last five years, and so remains a safe choice. If, however, Darwall has recovered his old form and learned some lessons, European Opportunities Trust, trading on a 12% discount, may be the one for the brave to invest in.

Focusing on stocks

Darwall retains his style of high conviction and low turnover. The top-ten holdings (out of 28) account for 74% of the portfolio, one of the largest being Novo Nordisk (as it is for BlackRock Greater Europe), which, alongside Eli Lilly, dominates the global market for the treatment of diabetes and therefore obesity. A third of the portfolio, much higher than for Fidelity European and BlackRock Greater Europe, is invested in the UK, including 10% each in RELX and Experian, making this a “pan-European” portfolio. Borrowings to enhance performance equivalent to 9% of net assets indicate optimism about the portfolio and a relaxed view of the market.

This view is supported by Cedric Gemehl of Gavekal, who points out that the forward price/earnings ratio of the European market has fallen from 18.3 a year ago to 12.6, slightly below the median value of the last 20 years of 13.5. The price/book ratio is right on the long-term median at 1.6 and the dividend yield at 2.9% is close to the median (3.2%).

The median implies that there is downside as well as upside, but Gemehl adds that the valuation relative to government bonds is more attractive. In the last 20 years, this has only been better in 2008, 2012 and 2020, all times of recession, so “if the eurozone economy now tips into recession and earnings fall, eurozone equities are likely to weaken further. The market’s current valuation is pricing in a sizeable economic slowdown, but not a deep recession”.

But Darwall focuses on stocks. “I invest in companies not economies. I haven’t built the portfolio on a view of inflation, but, for what it’s worth, I think inflation will be a longer-term problem. European governments have hidebound their economies with more and more restrictions – for example, the energy transition will be at higher cost – while central banks, especially in the UK, have lost the will to deal with inflation,” he says.

Darwall avoids those problems by not investing in businesses that are hurt by energy inflation, but in companies based on intellectual property that are able to deal with inflation, that can “flourish through the cycle, which competitors find hard to imitate and regulators aren’t interested in knocking”. Once he finds these companies, he sticks with them instead of playing into market rotations or trends, without trying to time the cycle. It sounds like those who gave up on Darwall two years ago should start listening.

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The road to hell is paved with good intentions. Fears of global warming have created massive enthusiasm for “green investing” over the past few years. Industries that furthered the goal of cutting emissions – such as renewable energy – have found it easier to raise capital. Financial institutions have allocated more money to environmental, social and governance (ESG) strategies in general. Funds claiming to follow ESG principles now manage $6.1trn, representing 10% of worldwide fund assets, mostly in Europe.

Asset managers have shown that they are willing to use their power to structurally shift our economies. The five largest investment managers – BlackRock, Vanguard, UBS, State Street and Fidelity – hold a combined $22.5trn in assets, giving them an enormous amount of clout if they act together.

Last year we saw an example of them doing so, when several backed an activist hedge fund in voting three directors off the board of oil major Exxon Mobil. Meanwhile, banks and insurance companies are making “net zero” commitments not just at company level but also at the portfolio level – which is affecting where they are willing to invest and lend.

There is an obvious problem with this. Many of the industries being shunned by ESG-conscious investors and lenders remain crucial to the way the world works. Sectors that emit large amounts of carbon dioxide (directly or indirectly) include energy, mining, heavy industries such as metals and chemicals, farming and transport. We may not like this, but we can’t immediately replace them: 80% of the energy consumed in the world is still generated from fossil fuels.

The consequence of several years of lower investment in these out-of-favour sectors was already becoming apparent in the second half of 2021: the Bloomberg Commodity Spot index hit an all-time high in October as rising demand collided with tight supply. The Russian invasion of Ukraine brought matters to a head.

We need affordable, secure energy

Investment in oil and gas has been depressed over the past six years and discoveries are at the lowest for the last 75 years, according to Rystad Energy, a Norwegian energy-intelligence firm. Surging oil and gas prices have huge consequences financially – Citigroup estimates the primary energy bill for Europe will reach $1trn this year, close to the record levels of 2007 and 2011. It also has both energy security and environmental implications.

The UK and Europe have to import liquefied natural gas (LNG) from the US – gas that was produced using highly polluting fracking techniques. Reducing European reliance on Russian oil and gas will require intensive capital expenditure in other geographies, not least because all types of oil are not the same and supplies need to be matched to refinery capacity – light, sweet (low-sulphur) crude is easier to refine than heavy, sour (high-sulphur) oil.

Despite the obvious need for more investment and the likelihood that oil prices will remain elevated, the shares of European oil majors have remained flat since the beginning of the year, unlike their American counterparts. That may reflect their exposure to Russia, but also probably, at least in part, the fact that oil is now a taboo sector for some increasingly ESG-conscious investors – ie, today’s equivalent of tobacco.

Firms such as BP and Total offer interesting value in a world where energy is more scarce. However, the most risk-seeking investor may look at the extremely cyclical offshore oil drilling sector, where consolidation is under way and major companies such as Odfjell Drilling and Maersk Drilling should emerge stronger. Canada’s oil sands produce some of the world’s most carbon-intensive crude, but shares of Imperial Oil and Canadian Natural Resources are rising, reflecting renewed interest from investors in the sector.

Of course, it’s not just oil. The transition to die Energiewende (a long-term renewable energy and climate strategy) favoured by Germany has been close to a disaster this winter. Back in October, several European countries warned of potential blackouts and electricity prices shot up due to low wind power generation.

Prices of natural gas for gas-fired power stations – the back-up for wind – soared as well, and stocks fell to all-time lows. The uncertainty of whether Russia (which supplies 40% of Europe’s gas) could turn off the tap at any moment has really demonstrated the fatal flaws in European energy policy.

On the European continent, some factories had to stop or limit production – compounding supply-chain issues – while others began acquiring their own fuel generators to get off the grid immediately. Poland took a different approach.

The government decided that it would continue to exploit the Turow coal mine near the border with the Czech Republic – and would ignore a €50,000 daily fine levied by the European Union to do so. Coal and cheap but highly polluting lignite (brown coal) generates 75% of Poland’s electricity, and the transition to nuclear energy will take some years.

Poland is not the only country deciding that it would rather increase pollution than run short of energy. China, which has tripled its production of coal since 2000, announced a ban on coal exports and is increasing investments in mining to ensure energy security. The reality is that annual world coal consumption still stands at 8.5 billion tons and has not declined much in recent years.

That is why miner Glencore is betting that coal will still be relevant. Its share price is up by 50% year on year as investors come round to the same view. The other big winner may be nuclear energy, which provides about 30% of the world’s low-carbon electricity. France and the UK are both now planning to expand their nuclear capacity to produce carbon-free electricity and meet climate objectives.

This will benefit uranium miners such as Cameco and Energy Fuels. In contrast to coal – which is hard to greenwash – nuclear is undergoing a makeover. The EU now plans to label some nuclear projects – and even some gas ones – as green. You can argue about whether any power that leaves toxic waste to be stored for thousands of years can really be environmentally friendly, but this decision illustrates both the limits of ESG semantics and the risks to our economies of running out of affordable energy.

An electric economy

still needs metals Meanwhile, metals such as aluminium, copper and zinc have all reached elevated levels. Some of this is due to speculation and more recently to sanctions on Russia, and these levels may not be fully sustainable, but there is a real lack of supply. This has been exacerbated by rising demand for some metals caused by the electrification of the economy – another key green theme where the impact on raw materials has been underestimated.

Large miners such as Rio Tinto, BHP and Glencore offer exposure to various metals. Other peers look even cheaper. Anglo American trades on an enterprise value (EV – market capitalisation plus debt) of only 4.1 times earnings before interest, tax depreciation and amortisation (Ebitda) and carries nearly no debt. It regrettably spun off its coal business, Thungela Resources, under ESG pressure last year.

Thungela’s share price has shot up fivefold since its initial public offering in June. Glencore shareholders should probably hope that their company can resist any similar pressure to get rid of its coal operations. Many other miners are also trading at depressed valuations – for example, Nexa Resources, which extracts zinc in Latin America, is on an EV/Ebitda ratio of three and generates 28% Ebitda margins.

Though gold and silver pulled back last year because markets expect a series of increases in interest rates, prices are now resilient and gold miners are priced extremely cheaply. Many are poorly managed and operate in difficult geographies (such as Mali, Peru and Russia), but some generate healthy and steady cash flows. I favour Barrick Gold.

Makers of metals such as steel, aluminium or zinc have different dynamics to miners or energy – their fortunes depend on whether demand and prices for their finished products outstrip raw material costs (metal ores and energy). If we start to see shortages in output here at the moment, it’s not – broadly speaking – about a shortfall in capacity, but rather a shortage of affordable inputs (specifically energy, which is hurting many producers in Europe).

Nonetheless, the market value of steel companies is historically broadly correlated to commodity prices, according to consultancy McKinsey, albeit to a lesser extent than primary producers (there’s a 64% correlation for the steel sector, compared with 84% for oil and gas, and 93% for miners). Steel makers such as ArcelorMittal and Ternium are seeing their shares rally, yet trade at EV/Ebitda ratios of less than two, while generating strong profit margins. This is a notoriously cyclical industry and investors are right to treat it with caution – but today’s aversion to energy-intensive, carbon-spewing sectors may still leave it cheaper than fundamentals would suggest.

Conditions are hurting aluminium producers more: aluminium smelting is extremely energy intensive (and carbon intensive) and so rising energy prices have slashed margins. Unable to fully pass on prices, producers have been shutting down some capacity, which was already leading to tighter supply. The war in Ukraine has now upended matters: Russia is the second largest producer of aluminium outside China, with around 6% of global production, and this may be taken out of the market due to sanctions. Thus shares of efficient producers such as Alcoa, which had been steadily recovering from its 2020 lows, are holding up despite the headwinds.

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Refineries and petrochemical plants are not the ESG investor’s best friend, either: they take in oil or gas and produce a range of often polluting products. These sectors are often ignored, in part because they are complex. As with metals, returns depend on input costs (eg, oil or gas feedstock) and demand for the products they produce. Prices and margins on some products tend to be fairly closely linked to oil or gas prices; for others, the connection is looser. Local conditions can play a big role: US refiners such as Marathon Petroleum and Valero Energy are doing well now, because the Ukraine crisis has pushed up global prices for products such as diesel (which can be traded internationally), even while US prices for natural gas – a key cost – remain much lower than for European refineries. Petrochemical producers tend to suffer more from high oil and gas prices: the shares of European firms such as BASF and Evonik are now holding up noticeably worse than US firms such as Dow and Dupont, because the latter again enjoy lower feedstock costs. In general, companies producing complex and specialised chemical products generate higher margins (and are more attractive to investors), which explains last week’s move by Belgian firm Solvay to split into two companies: one focused on basic chemicals considered as commodities and the other focusing on speciality chemicals.

There are opportunities for knowledgeable investors to take advantage of input and output price trends, but one product stands out as more crucial than others right now. The rising price of ammonia – made from natural gas and hence hit by higher gas prices – has led to quintupling of fertiliser prices. That will affect food production. Food prices have already increased by 22% in 2021 according to the World Bank, and they are not likely to fall back this year given prices of fertiliser and seeds. Crops such as wheat and maize require regular fertilisation – too much, in many cases. The UK, for example, consumes 100kg of fertiliser per acre, according to the United Nations Food and Agriculture Office – 60% more than in the EU. The efforts made in Europe to reduce usage of fertiliser to preserve the environment and protect aquifers from run off have been considerable, but farmers do not have much room to cut consumption further, especially if they are trying to keep crop yields up.

Indeed, farming is surprisingly a major source of pollution: it is responsible for 17% of global carbon emissions. In Europe, the sector has been hit by heavy environmental regulation, and two years ago the EU agreed to reform farm practices further as part of its drive to hit net zero by 2050. The changes would have led to a further cut in production. Soaring food prices and geopolitical threats will reportedly cause those plans to be reassessed, with greater focus on food security. If so, it will be yet another example of how hard it is now proving to square going green with continuing to meet the world’s essential needs

What’s happened?

A growing number of big investors, including bosses at BlackRock, Oaktree Capital Management and Allianz Global Investors, have gone public with predictions that the war in Ukraine will prove an inflection point in the global economy. “The Russian invasion of Ukraine has put an end to the globalisation we have experienced over the last three decades,” wrote Larry Fink, chief executive of the world’s largest asset manager, BlackRock, in his annual letter to shareholders last week. The isolation of Russia from capital markets will promote a trend everywhere towards national independence and hasten the development of rival economic blocs led by the US and China. A world in which cheap offshore manufacturing and smooth global supply chains hold costs down will be replaced by “a large-scale reorientation of supply chains”, and that will be inflationary, says Fink. That implies lower growth and lower returns for investors.

Is Larry Fink right?

One metric that offers a reasonable proxy for “globalisation” is international trade as a share of global GDP. That share surged from 25% in 1970 (World Bank figures) to 50.7% in 2000 and peaked at 61% in 2008. This was an era when Western policymakers believed that trade and investment would bring the world closer together politically. From 1992 to 2008, Russian gas exports grew tenfold. Between 1985 and 2015 Chinese goods exports to the US rose by a factor of 125. And in the 1990s annual global flows of foreign direct investment rose by a factor of six.

So what went wrong?

In the wake of the financial crisis, global trade fell sharply before bouncing back a bit. But it has never again hit that 61% – instead trending lower and falling to 51.6% by 2020. Meanwhile, global flows of long-term investment fell by half between 2016 and 2019. The Ukraine war follows hard on the supply-chain shocks of the US-China trade war, the Covid-19 pandemic, and the semiconductor shortages – all of which have focused attention on supply-chain sovereignty and domestic production. In other words, globalisation has been in retreat for some time, as John Micklethwait and Adrian Wooldridge point out on Bloomberg “But Russia’s invasion of Ukraine marks a bigger and more definitive assault than the previous ones.”

Why is this retreat happening?

Two main reasons, say Micklethwait and Wooldridge. First, because “geopolitics is definitively moving against globalisation” and towards a world dominated by two or three great trading blocs (an Asian one led by China, perhaps with Russia as its energy supplier; a US-led bloc; and perhaps a third centred on the EU). But just as important is a change in mindset. CEOs now understand they are in a world where political matters trump economic logic. They are recalculating accordingly, shifting from a “just-in-time” mentality to “just-in-case” – by preparing to bring production closer to home in case their foreign plants are cut off, for example. Historians may well decide that “the definitive moment globalisation died was when China, India and South Africa all abstained on the United Nations vote condemning Putin’s invasion”, says Robert Peston in The Spectator.

What will that look like in practice?

Already, French president Emmanuel Macron has committed his country to self-sufficiency in pharmaceuticals. The EU has vowed to wean itself of Russian gas, oil and coal by 2027. Joe Biden has promised to “make sure everything from the deck of an aircraft carrier to the steel on highway guardrails is made in America from beginning to end”. But this “fetishising of domestic manufacturing over advancing crossborder trade in services and networks” is ironic, argues Adam Posen in Foreign Affairs. In fact, it is the latter sectors that have truly advantaged the West over Russia in implementing effective sanctions, and that have deterred Chinese businesses from bailing Russia out. Sadly, the retreat from globalisation will diminish both innovation and the return on capital in the world economy, and “it will do so on every side of the economic divide”, says Posen.

Growth will suffer then?

Yes. It will lead to higher prices for inputs, already seen most dramatically in the oil and gas price surges, but also in soft commodities and metals, as Emma Duncan points out in The Times. Higher input prices push up consumer prices and reduce output, thus hitting employment and wages. The other “source of economic pain will be lower demand, as markets are closed off to each other”. World trade will fall – hurting the global economy, and Britain (an open, trading, service-based economy) more than most. “About 63% of our GDP is traded, compared with 26%, 36% and 49% of America’s, China’s and Russia’s respectively.” Globalisation is in retreat, and we are “going to miss it when it’s gone”.

What can be done?

For policymakers, deglobalisation adds to the fiscal pressure of a low-growth world. Rishi Sunak’s spring statement fiddled with tax rates. But arguably far more important, says James Heywood on CapX, was his promise of a major review of how the tax system creates incentives for investment. That could prove crucial to reinvigorating growth and productivity. Meanwhile, we’ll have to learn to invest in an inflationary environment that compresses multiples and shrinks profits, says asset manager Thomas Friedberger. Investors will have to position themselves to “take advantage of these mega trends: energy transition, cyber security and digitalisation”, he told the FT. Monica Defend, head of the Amundi Institute, suggests a focus on sectors such as energy and defence that will benefit from “strategic autonomy”. Virginie Maisonneuve, of AllianzGI, believes the shift could “drive innovation” by linking renewable energy with artificial intelligence to enhance efficiency, for example.

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Larry Fink has written another letter.

The chief executive of giant asset manager BlackRock – arguably the most quietly powerful man in the markets – told BlackRock shareholders yesterday that Russia’s invasion of Ukraine “has put an end to the globalisation we have experienced over the last three decades.”

Fink is wrong. Globalisation peaked a while ago. This is just another step down the road away from it.

So what happens next and what does it mean for investors?

Russia’s invasion of Ukraine is just another step down a road we’ve been on for ages

“Russia’s brutal attack on Ukraine has upended the world order that has been in place since the end of the Cold War, more than 30 years ago.”

Fink can be forgiven for glazing over the 2014 annexation of Crimea and the 2008 invasion of Georgia. You could still cross your fingers at that point and pretend that we wouldn’t get to where we are today and that “buy the dip” was still the order of the day. This one is a bit harder to brush off.

Also, it’s important from a PR point of view. BlackRock is the world’s biggest asset manager. That means that it’s inevitable that BlackRock owns some Russian assets (though not “significant investments” as Fink quickly points out). Much of this will be entirely automatic – no more sinister than a side effect of tracking lots of emerging market indices.

But no one cares why you own Russian assets right now. You have to be seen to be getting rid of them and to be condemning the idea that you ever owned them in the first place.

(This may sound cynical, but I say this as someone who has always avoided Russian assets, mainly because I’ve always been slightly concerned that something like this would happen.)

Fink also continues to subtly shift expectations as to what counts as “ESG” (an investment that ticks the environmental, social and governance boxes). He’s already talked about the “energy transition” requiring some “light brown” interim fuels like natural gas, before we get to the full-blown “green” stuff.

The Russia invasion merely adds to the case for fossil fuels not being as evil as they once were thought if it means the goodies don’t have to rely on the baddies for their energy sources. (Again, a point that anyone paying attention could and did make many times before this war kicked off).

Anyway, to be fair to Fink, he sums up the new backdrop for investors well. Countries now care about security of supply – on everything from energy to toilet roll – more than cost of supply. We’re moving from a “just in time” world to a “just in case” one.

This unwinding of globalisation is bound to drive up prices. It already has. As Fink puts it: “A large-scale reorientation of supply chains will inherently be inflationary.”

Inflation is here to stay

But this has been happening for a while. Like most things, what might seem to be a social or political phenomenon (”Russia is not our friend any more, we need to stop trading with it”) is really an outcome of economics.

A lot of the long-term forces driving “de-globalisation” have little to do with war, or even the pandemic. They are just the logical corollaries of the initial surge.

Put very simply, globalisation boomed in the first place because the communist part of the world – China and the USSR – opened up (arguably due again to economic contradictions inherent in their social models).

Suddenly a vast pool of labour and capital that had previously been unavailable was up for grabs. Energy prices were low too.

Making stuff in China (and emerging Europe) was cheap. Employing workers in China was cheap. Getting stuff from China to other places was cheap. Offshoring made complete sense. The cost savings were more than ample to offset the risks. So it made perfect sense for companies to take advantage.

There were a lot of benefits from this. China’s embrace of pseudo-capitalism in particular raised a huge chunk of the global population out of poverty. It also kept a lid on inflation in both developed and emerging economies.

However, as Howard Marks of Oaktree Capital points out in his latest memo, which happens to touch on many of Fink’s points, “offshoring also led to the elimination of millions of US jobs, the hollowing out of the manufacturing regions and middle class of our country, and most likely the weakening of private-sector unions.”

The US experience does not directly map onto the UK, which had experienced an awful lot of these things already. However, the broader point – that vastly increased labour market competition saw workers in developed markets bear the brunt of globalisation while lacking the voice or political representation to do anything about it – is true.

The 2007-2009 financial crisis marked a tipping point because even the people who thought they’d been winning (because their house price had been soaring) realised they’d been conned at some level.

A desire for change and the road towards populism really started there.

I’ve discussed all that before but I really do think it’s just worth remembering this when you’re surrounded by voices arguing that this is a sudden turning point, or that Brexit and Trump and the rest of it was all about Facebook or “disinformation”. It wasn’t – it was the inevitable consequence of our “elites” (for want of a better word) taking the peace dividend of the 1990s and squandering it.

Incidentally, Marks also makes the interesting assertion that developed economies – and Europe in particular – outsourced their dirty energy production needs to not-necessarily-friendly countries in order to bolster their “green” credentials. That’s a more contentious point and one I’d like to visit at another time but it’s one to think about at least.

Anyway, all of this just goes to say that inflation is here to stay for the long run. That means managing your money more actively. If you haven��t already subscribed to MoneyWeek magazine, you should do so now (and you get your first six issues free).

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The share price of BlackRock World Mining Trust (LSE: BRWM) has risen by 170% since its pandemic low and by 70% since the end of 2019, supplemented by an annual dividend yield of 3.6%. Yet Olivia Markham, co-manager of the £1.2bn trust, is optimistic that there is further to go.“Compared with other cycles, which usually last around 36 months, we are about half way through, but not necessarily that far in terms of investor returns,” she says. “The backdrop for most commodities is healthy, valuations are attractive, company balance sheets are incredibly strong and management is focused on capital discipline.”

Still, old hands will remember how the shares fell by two-thirds in six months in 2008, after having multiplied six fold in the previous five years. They then soared by 220% to a peak over £8 in early 2010, before falling back below £2 in early 2016. They now trade at net asset value, close to 650p. When they fall out of favour, the discount has risen to 20%.

Miners have learned a lesson

The mining cycle is a cruel one in which rising demand eventually encourages investment in new supply. The price of mined commodities drops quickly with a disproportionate impact on mining profitability, given that many of the costs are fixed. Money borrowed to finance expansion or new mines can turn out to have been wasted, forcing the company to cut costs and retrench.

However, Markham believes that the mining companies have learned their lesson, hence their collective caution about investment and strong balance sheets. This means that strong demand combined with constrained supply is pushing up metal prices. Yet “share valuations relative to cash flow are at the bottom of their 30 year range”, she says.

With China’s growth rate bottoming, the iron-ore price is rallying. Demand for steel is strong, making price rises likely. Coal prices have soared in the last year alongside oil and gas. Copper supply is still falling short of demand, thanks to environmental issues and declining ore grades at mines, especially in Chile, which accounts for 30% of global supply. The price has risen 60% in the last two years.

Copper, as well as nickel, cobalt, lithium and the rare earth metals are seeing strong growth in demand due to the push for net zero as well as in broader technology usage with expected compound growth rates of between 25% and 50%. This makes the bulls believe that “this time it’s different” in the metal cycle, with secular growth replacing demand volatility.

BRWM’s portfolio is concentrated with the top-ten holdings, led by Vale, BHP and Glencore, accounting for over half the portfolio. Precious metals accounted for 40% in 2020, but it’s now just 16% as Markham believes that industrial metals are a better way to play the pick-up in global economic growth.

Proceed with caution

Markham’s optimism may be justified. However, the investment restraint of the major mining companies could falter, as it has in the past, if a wave of optimism sweeps the sector and new companies spring up with funding to develop exciting opportunities.

Long-term growth might guarantee demand but technology, spurred by high prices, could drive greater resource efficiency, or even replace it entirely. For example, there is no guarantee that lithium-ion batteries, first developed in the late 1980s, will not be superseded.

Finally, political risk is ever present. As metal prices rise, governments are likely to raise royalty payments and levy higher taxes, especially where, as in Chile, a populist government is elected.

Holders should look for the chance to exit. Buyers should wait for the next down-cycle, when the shares are likely to trade at a significant discount.

On the last day of 2021, the world’s most-listened-to-podcast on Spotify, The Joe Rogan Experience, aired a three-hour deep-dive interview with Dr Robert Malone, an early developer of the mRNA technology used in Covid-19 vaccines.

Malone has more recently been widely criticised for spreading disinformation about virus vaccines and the interview came just days before Malone’s Twitter account was suspended with the social media site citing violations of its Covid misinformation policies.

As is often the way with a Rogan interview, the conversation struck a public nerve and went viral. To say the interview was divisive would be an understatement. But it’s not what Malone said about vaccine policy which drew the attention of the serious people of ‘finance Twitter’.

It was Malone’s reasoning as to why the pharma companies might be operating irresponsibly. “The overlords that own them,” Malone told Rogan, “BlackRock, Vanguard, State Street, etc, these large massive funds that are completely decoupled from nation states have no moral core. Their only purpose is return on investment. That is the core problem here.”

For many of those who like to use social media to share market and economic insights, the statement seemed absurd. To suggest that BlackRock or Vanguard, which make their daily bread and butter from managing the assets of pension funds, unions and many more, were an omnipotent but malevolent force was misguided. The observation instantly implied Malone had major credibility issues.

Yet, when you unpick Malone’s statement, an iota of truth rings out. The structural reality of modern corporate control tends towards oligopoly. It may just have gone insufficiently scrutinised due to its sheer obviousness.

It’s not controversial to say that passive fund providers have too much power

In one way or the other — mostly via the shareholder votes they control — BlackRock, Vanguard and State Street, really do influence nearly $20trn of assets and as a result also the corporates that issue them.

Yes this influence is rendered in our names. But there’s a solid argument that this type of mass delegation of interest, especially via passive investment vehicles which dominate BlackRock and Vanguard offerings, could unwittingly be constraining the usual incentives that keep capitalistic economies in check.

The idea that index investing specifically may be warping capitalism isn’t new. One of the most prominent voices to have made the case that index funds could be worse than even communism was broker Sanford C. Bernstein & Co in 2016.

A note from the broker at the time observed that “a supposedly capitalist economy where the only investment is passive, is worse than either a centrally planned economy or an economy with an active market led capital management”.

The theory went that if investment flows to industry occurred on a very broad-brush and passive level, bad companies would go unpunished while good companies would have little to no incentive to keep adding value.

Eventually the incentive to try and outperform each other would disappear — a fact that could encourage potentially collusive practices that did little to add true economic value.

In recent years the environmental, social and governance (ESG) investing trend has come to address some of these potential misallocations. Even so, in being outcome- rather than profit-driven, ESG too has failed to address the collectivising forces that are skewing corporates towards maximising rent extraction above all else.

This raises other uncomfortable truths. Since the world’s largest asset managers disproportionately represent the wealth of older generations, they may also have an interest in encouraging corporate behaviours that favour those generations over younger ones. Maximising rents that can be drawn from younger generations at any cost may be the unwitting result.

In light of what is now being called the Web3 phenomenon, which aims in its own unique way to revive active personal management through new types of blockchain-based mutual structures, it’s an important point to dwell on for markets.

What might happen to valuations if and when users begin to understand the true power that resides in their personal engagement with corporates, both in terms of consuming their services and investing in their future growth? How might early-stage capital formation be impacted?

BlackRock’s recent decision to give a number of institutional clients the right to proxy vote on their stock holdings is just one indication of powerful democratising forces being afoot in the modern marketplace. Voices like Malone’s may be too simplistic and extreme on the issue, but they do offer an important insight into a fast-changing zeitgeist.

For more from Izabella, go to TheBlindSpot.com.

And for more on the topic of shareholder democracy, read Merryn’s new book, Share Power.

The Power of Capitalism – that’s the title that Larry Fink, CEO of Blackrock, has given to his latest letter to the CEOs of the companies in which his firm invests.

Fink’s letters matter. Blackrock is the largest money management company in the world – the most recent numbers suggest that it has over $10trn under management.

That’s not just real money in absolute terms, but also the kind of money that gives him stunning power.

The most powerful shareholders in the world

Along with Vanguard and State Street (the world’s other fund management giants), Blackrock controls some one third of all assets managed worldwide.

In the US, one of the big three is the top shareholder in 495 of the companies in the S&P 500. In the UK, Blackrock and Vanguard between them control over 10% of more than two-thirds of the 100 largest listed companies. Last year Blackrock was the number one shareholder in 41 of those firms.

I could go on – there are endless stats on this. But you get the idea: Fink controls a vast mountain of money invested in the world’s stockmarkets in such a way that, given how dispersed other shareholders are, gives him enough votes and enough clout to demand that an awful lot of companies do pretty much anything he fancies.

And, as he makes clear in his letters (which, by the way, aren’t really just for the CEOs – if they were, I’d get fewer press releases about them) he fancies quite a lot of stuff.

For the last few years it’s been CEOs being more into ESG (environmental, social and governance issues) – presumably because that is what Fink figured his clients were increasingly into. So we have had a good few letters explaining that the old way of running a listed company – making stuff or creating a service, selling it as efficiently as possible, and using the profits to the benefit of shareholders, is wrong, wrong, wrong.

Instead, said the world’s self appointed hectorer-in-chief, shareholder capitalism must give way to “stakeholder capitalism” and each company should also “show how it makes a positive contribution to society.”

You might say that the very act of creating a service or product that is in demand and legal is in itself proof of a positive contribution to society. Not so: companies must benefit “all their stakeholders including shareholders, employees, customers and the communities in which they operate”.

Note that “neutral” is not an option – there must be “benefit” (oh, and there must be net zero – in 2021, Fink announced that all companies should be net-zero carbon emitters by 2030). It’s all quite a lot for one unelected do-gooder to demand from pretty much every company in the world isn’t it? Less shareholder capitalism than money manager capitalism, perhaps.

A backlash is building

No surprise, then, that there’s a sense of a little backlash building. One example: last week JD Wetherspoon released a trading update. In it, the company noted that Blackrock (which holds some 3.5% of Wetherspoon shares) had voted against all Wetherspoon non-executive directors “for alleged shortfalls in corporate governance standards at our November AGM”.

Quite right, you might say. But I’m not so sure. Blackrock’s corporate governance executives had, said the update, never previously mentioned concerns and had given no warning of their voting intentions.

Worse, “Blackrock itself infringes UK corporate governance guidelines since its chairman is also CEO and it does not appear to observe the nine-year maximum tenure guideline for non-executive directors.” Glasshouses. Stones. Not easy living up to your own standards is it?

Still, Fink is nothing if not market aware. So this year’s letter contains some careful backtracking. Turns out that “stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not ‘woke’. It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper.”

Fink continues: “This is the power of capitalism. In today’s globally interconnected world, a company must create value for and be valued by its full range of stakeholders in order to deliver long-term value for its shareholders. It is through effective stakeholder capitalism that capital is efficiently allocated, companies achieve durable profitability, and value is created and sustained over the long-term.

“Make no mistake, the fair pursuit of profit is still what animates markets; and long-term profitability is the measure by which markets will ultimately determine your company’s success.”

So stakeholder capitalism is actually shareholder capitalism? Or something – Fink fudges it a bit at the end. When different groups of stakeholders want different things, he says, companies must “stay true” to their company’s “purpose”.

This is meaningless guff, of course (unless everyone agrees that a company’s purpose is to make money – in which case it means “please get on with making money”). Backtracking is never simple.

Is Larry Fink seeing the light on individual shareholder power?

Much more interesting, however, is that there is a hint in this letter that there will be a time when how Larry Fink defines capitalism – or the guff he uses to disguise the fact that there is a conflict between how he’d like to be perceived and the way his day job conflicts with that – doesn’t matter so much any more.

One of my long-term gripes about the fund management industry is the way in which it has appropriated our shareholder rights. All shares come with a vote. But if we invest via funds we don’t get those votes – the fund managers do. Sometimes they use them, sometimes they don’t – but one thing they never do is ask us how we would like to use them.

This is not a good thing – it undermines the very foundations of shareholder capitalism and divorces us from the corporate world (and capitalism itself, for that matter). If we are the end owners of companies (we are), should it be us or Fink who tells them what to do? I’d say us.

Fink might be beginning to agree – or at least to understand that, as he can’t please all the people all the time, he might as well let them please themselves. I say “might” because we are at the “sounds good” stage – and he could easily change his mind on it, if it gets to the “adversely affecting his business/influence” stage.

Still, here’s what he says: “Many people are rethinking their relationships with companies as shareholders. We see a growing interest among shareholders in the corporate governance of public companies. That is why we are pursuing an initiative to use technology to give more of our clients the option to have a say in how proxy votes are cast at companies their money is invested in.”

For now, this is limited to a few institutional clients (fund manager gives vote to fund manager) but “we are committed to a future where every investor – even individual investors – can have the option to participate in the proxy voting process if they choose.”

I’m not holding my breath (it’s the “even” in “even individual investors” that suggests we aren’t top of his list), but this is still so much a part of my idea of what shareholder capitalism should be that it is the subject of my new book Share Power (more on this here).

Unusually, I seem to have timed its release rather well – and even more unusually, I seem to have found a point of agreement with the CEO of BlackRock.

MoneyWeek readers can get a discount using the below details, but you can also order it on Amazon here.

Merryn’s new book, Share Power: How ordinary people can change the way that capitalism works — and make money too, is now out through Short Books. We have negotiated a 40% discount for MoneyWeek readers – although you will have to pay postage. To claim the offer (£6 for Share Power, £3.10 for the postage) please contact Hachette Distribution with the discount code MWJan22 at hukdcustomerservice@hachette.co.uk or phone 01235 759555 Monday to Friday, 9am – 5pm UK time. Pending availability, you should receive your order within three to five working days from receipt of payment.

In 1976, fresh from taking an MBA at UCLA’s business school, Larry Fink “strutted off to Wall Street” without a firm idea of what he wanted to do “except make money”, says the Financial Times.

Taken on by First Boston as a bond trader, Fink proved “a rare talent” and, within a decade, had become the youngest managing director in First Boston’s history. “My team and I felt like rock stars,” he later recalled. The sky seemed the limit.

But then it all came crashing down. In 1986, Fink’s desk suddenly lost $100m when interest rates unexpectedly fell. “He went from CEO-in-waiting” to “outcast” overnight.

The making of a legend

The episode was a key staging post in Fink’s journey to become the undisputed “king of Wall Street” when he built BlackRock – “the biggest money manager the planet has ever seen”, with almost $10trn under management. To put that in context, “it is roughly equivalent to the entire global hedge-fund, private-equity and venture-capital industries combined”.

One of the biggest shareholders in virtually every major company in America – and quite a few internationally – BlackRock is also one of the biggest lenders to companies and governments around the world.

Born in 1952, Fink was raised in Van Nuys, California, going on to complete a political theory degree, and then his MBA at UCLA. He quickly emerged as “something of a legend on Wall Street”: credited, along with Lew Ranieri of Salomon Brothers, with transforming bonds from “a sleepy backwater” into a multi-trillion debt-securitisation market, says Vanity Fair.

Fink’s particular expertise was mortgage-backed securities. After leaving First Boston in disgrace, he began a new venture bankrolled and housed by Blackstone – a rising star of the private-equity industry. When the two companies “divorced” in 1994, BlackRock was born.

Fink, now 68, has always chafed at being listed among “the big swinging dicks” immortalised in Michael Lewis’s account of the origins of the financial crisis, Liar’s Poker. He attributes the characterisation to “the snobbery of Wall Street’s Wasp investment bankers, who looked down on Jewish and Italian traders who were allowed to succeed in the mortgage-bond business only”.

But if his innovations eventually brought “the economy to its knees”, BlackRock profited mightily from the clean-up – emerging as “the financial fulcrum of Washington and Wall Street”, says Vanity Fair. Who else, after all, was better placed to advise on analysing toxic securities?

The purchase of Barclays Global Investors in 2009, with its “mountain” of exchange-traded funds (ETFs), propelled BlackRock to the front of the equities world, says Fortune. Indeed, Fink has “supercharged” the world of passive index funds, says the FT. “BlackRock has, in effect, done for investing what Henry Ford did for the car, constructing a financial assembly line that churns out products for investors more efficiently than virtually anyone else.” Alongside Vanguard, Fink’s firm now enjoys a virtual “duopoly”.

A sea change in the industry

When Fink announced early last year that BlackRock would put sustainability at the heart of all its investment decisions, it was seen as a sea-change for the finance industry. Critics accuse him of “greenwashing” and worry about the concentration of power in one firm.

To some critics, BlackRock is “the new Goldman Sachs”, says the FT, and that puts Fink in the cross-hairs of agitators and reformers who argue the firm is too big to fail. But “barring an epic shift in the political or financial winds”, it’s hard to see what could throw BlackRock’s growth. Fink’s reign “at the top of the financial ecosystem” shows no sign of ending.

What’s happened?

There’s a growing sense that foreign multinationals and investors have underestimated the risks of doing business in China and overestimated the benefits. From reining in tech billionaires such as Jack Ma, to making life harder for multinationals trying to access the Chinese market while staying on the right side of Beijing, all indications are that China under Xi Jinping is increasingly prioritising absolute control by the Communist Party of China (CPC) over further economic liberalisation. The first big red flag came last November when financial regulators suddenly suspended the IPO of Ma’s Ant Financial, days before its listing in Hong Kong and Shanghai. Warning bells have been ringing ever since.

Such as?

One that spooked investors was the tightening in late July of regulations governing China’s $100bn private tutoring industry, banning firms that teach the school curriculum from making a profit. Specifically, the worry concerns a new ban on Chinese tutoring companies using a corporate structure known as the variable interest entity (VIE). That’s essentially a holding company aimed at circumventing the strict rules banning foreigners from owning assets in key sectors, such as technology – and it’s long been a primary channel for foreign investment. Both Beijing and big Western institutional investors, such as BlackRock and Fidelity, have until now been “happy to gloss over the risks of the strucure”, says the Financial Times. That no longer looks so wise.

What else has got people worried?

Earlier this year China passed a new data security law that forbids firms from handing over any data to foreign officials without government permission. It strengthens the authorities’ already vast powers to intervene in individual businesses, by compelling them to share data collected from social media, e-commerce, lending and other businesses, and classifying such data as a national asset. The New York listing of Chinese ride-hailing firm Didi was a salutary reminder to investors of the political/regulatory risk involved. No sooner had investors put $4.4bn into the biggest Chinese IPO in the US since Alibaba in 2014, than China’s internet regulator accused it of “serious violations of laws and regulations” in collecting and using personal information.

Why was that so important?

The developments at Didi amount to “a shock-therapy type of enforcement”, says Benjamin Qiu, a Hong Kong lawyer. “We could see more control by the state, with in-effect data nationalisation as the end result.” The Didi fiasco was a particularly “painful reality check” for any Western investors complacent enough to think that “long totalitarianism” was a smart trade, says Niall Ferguson on Bloomberg. It has been clear for years that the symbiotic relationship between China and the US is fracturing, and that the CPC’s core goal is not “global economic dominance” but retaining domestic power. As China’s demographics bite, and its growth slows, that task will get harder while the “Cold War” between China and the US gets more pronounced. All that means increased risk for investors and businesses.

How will that manifest itself?

Sometimes it will be in obvious ways. For example, with a new law aimed at punishing Western companies that comply with US sanctions – and which is expected to be extended to cover business based in Hong Kong. That could leave Western multinationals stuck between complying with US regulations and getting sued in China. On other fronts, the risks are increasingly more subtle. Take China’s cinema industry, which has bounced back strongly this year and is by far the world’s biggest theatrical marketplace. But the slice taken by US releases has slumped, according to The Hollywood Reporter – in part because the ban on foreign film releases during the peak summer period has been stricter and longer than usual in deference to the 100th anniversary of the founding of the CPC. Or consider the speech last month by Xi attacking wealth inequality: it sent the share prices of Europe’s big luxury goods businesses reeling (see page 5). In 2021, China’s shoppers are expected to buy 45% of all the luxury goods sold globally, according to Jefferies, up from 37% in 2019. A drive by Beijing to rein in the rich would be bad news for makers of posh handbags and investors are reassessing the risks.

Who else is suffering?

Some multinationals are already suffering from collateral damage. Ericsson, for example, the global number two maker of cellular equipment, reported in mid-July that its sales in China had plunged, and warned that its market share there was set to shrink sharply in coming months. The reason, it believes, is Sweden’s decision late last year to ban Huawei from the buildout of its 5G network. Multinationals in every industry doing business in China “are acutely aware that as the geopolitical environment worsens, all the money and effort they have put into building their businesses there could be at risk”, says Rob Powell in Newsweek. In the worst case scenario, that means confiscation. This week’s uncertainty over the status of Arm China – reported to have declared unilateral independence from its UK-based, Softbank-owned parent – will have added to the fears.

What should investors do?

Prepare for turbulence, says George Soros in the FT. Foreign investors who put money into China find it hard to recognise all these increased risks because China has confronted so many difficulties and come through. “But Xi’s China is not the China they know. He is putting in place an updated version of Mao Zedong’s party. No investor has any experience of that China because there were no stockmarkets in Mao’s time. Hence the rude awakening that awaits them.”

Commodities are on fire. But for private investors, gaining access to a notoriously fickle and unpredictable asset class through a straightforward fund structure is easier said than done. The most popular route for private investors has hitherto been through commodity-equity funds, with the resources team at BlackRock dominating most lists. Their World Mining Trust has gained 53% over the last 12 months.

But commodity equities do not necessarily move in line with the underlying raw-material market. The share price of, say, Glencore or BHP moves for many different reasons, not least underlying cash flows and managers’ decisions.

Investors seeking more direct exposure to commodities tend to focus on funds that track a major commodities index, such as those offered by Bloomberg or S&P Dow Jones. The main vehicles here are either exchange-traded funds (ETFs) or exchange-traded products (ETPs). The most popular version of the ETFs tend to be broad commodity index trackers offered by the likes of WisdomTree or iShares. These broad trackers use a composite index comprising subsectors ranging from oil to agricultural commodities, such as hogs or wheat.

A technical problem

Underlying these broad indices are futures contracts: promises to buy a specified commodity at some point in the future (one to 12 months is a normal range).The funds have no intention of taking physical ownership of the commodities, however. The idea is to “roll over” the so-called front-month futures each month. The fund manager sells futures contracts as they approach expiry and then buys the next month’s contract.

This is normal practice, but it can lead to a technical problem that reduces returns: negative roll yield. Just as bonds have a yield curve, with the interest rates on various durations forming an upward or downward slope, there is a commodities-futures curve: the futures price often diverges from the actual, physical spot price. If the futures curve slopes upwards (in other words, futures are pricier than the spot price), the market is in “contango”; if downwards, it is in “backwardation”.

If the market is in contango, then, as it usually is, next month’s contract is more expensive than the one just ending and the fund manager essentially pays a fee for buying a new contract. The cumulative impact of this negative roll yield can be substantial: most classic one-month rollover commodity-futures strategies tend to underperform spot prices over sustained periods of time.

This has forced the ETF issuers to experiment with complicated tweaks of the futures-based strategy. WisdomTree, for instance, has a successful range of enhanced funds that track one of the broadest commodity indices – the S&P GSCI – using a dynamic roll strategy. The aim is “to minimise the potentially negative effect of rolling future contract by determining the most efficient roll on the future curve for each commodity”. iShares has a similar fund called the Bloomberg Roll Select Commodity Swap, while XTrackers has something called the Commodity Optimum Yield Swap.

Incomplete coverage

There are other problems with these widely followed commodity indices. Some end up becoming dominated by energy prices, while others tend to exclude agricultural sub indices because they can be too volatile. ETF firms have responded with ideas such as ascribing equal weighting to various subsectors (Lyxor, for instance, has a Bloomberg Equal-Weight Commodity ex-Agriculture).

Currency movements are also a risk, with the core commodity markets transacting in dollars even though British investors are concerned with sterling returns. WisdomTree, among others, offers a full range of currency-hedged commodity trackers.

Weather is another potential risk. In natural gas, oil and agricultural markets, prices are affected by the season, while raw-materials markets can be susceptible to surges and dips as investors chase big themes.

Add up all these complexities and eccentricities and one can see why many institutional investors tend to avoid index trackers and opt instead for specialist commodity funds with active managers. They are experts at playing all these trends – the roll yield, seasonality, momentum – but they tend to charge for the privilege. The funds are also almost all inaccessible to private investors.

A cheaper option

Interestingly, however, Legal and General’s ETF arm – LGIM ETFs – has taken many of these ideas and incorporated them into a new listed ETF: the L&G Enhanced Commodities UCITS ETF (LSE: ENCG). The charges are much more private investor-friendly at 0.3% per annum.

The ETF takes various observed market processes and then builds a systematic series of strategies that aim to enhance returns. So with regard to the roll-over problem, the underlying index – from Barclays – uses a range of futures optimisation techniques. This might mean using a combination of one-month, three-month and one-year contracts.

The strategy also looks at the futures curve and then “allocates along the curves with the aim of optimising the roll yield characteristics”. In simple terms, instead of paying an active manager to stare at the curve, the quantitative system automatically allocates money to where the opportunity might be largest.

In addition, there is what’s called a “momentum alpha” strategy for agriculture and livestock sectors, which aims dynamically “to allocate to points of the curve that have historically outperformed”. The fund also aims to reproduce the market’s returns in the precious metals sector.

Add it all up and with luck you should get an optimised return on commodity markets at a relatively low cost. The ETF issuers have run a back test on the strategy, which suggests that the underlying index (the Barclays Backwardation Tilt Multi-Strategy Capped Total Return index) would have outperformed every year since 2009. All the fund lacks now is a currency hedge for sterling investors.

It’s been a tough week for big oil.

The world’s second-biggest listed oil company, ExxonMobil, now has a couple of board members who want it to stop producing oil.

Meanwhile, Royal Dutch Shell has been told by a Dutch court that it needs to make more effort to cut its emissions.

So what does this all mean in practice? Particularly if you’re an investor in said companies?

The power of passive

Yesterday, ExxonMobil lost a battle with a tiny activist hedge fund called Engine No. 1. The fund owned a 0.02% stake in Exxon (which, while small in percentage terms, is still about $50m worth of shares).

Engine No. 1 had proposed a binding shareholder vote to force Exxon to put some of its candidates on the board to push through strategic changes which will push the oil company to “diversify beyond oil and fight climate change”, reports Bloomberg.

As it turns out, Engine No 1 won. It secured the backing of BlackRock and other big shareholders, and it managed to get at least two of its candidates voted onto the board. So now, of 12 board members, Exxon now has at least two who are opposed to the current fundamental purpose of the company. That is going to make for some very interesting strategy conversations in the coming months.

Meanwhile, Royal Dutch Shell has been ordered by a Dutch court to “accelerate and deepen its emissions cuts”, reports the FT. Shell has been told to reduce its emissions by 45% by 2030, which is a lot faster than Shell had originally planned.

On top of that, as the FT reports, Chevron shareholders have also voted for a resolution that calls for the group to “substantially reduce” its emissions.

It would be a mistake to dismiss all this. Much of the time these things are just talking points – a bit like when shareholders vote against company bosses paying themselves ridiculous amounts, and the bosses tut and say they’ll take it “into consideration”, then take the money anyway.

This isn’t the case here. The Exxon vote is likely to lead to change – and it also illustrates the immense power of the big passive funds here. They might not be able to do this kind of thing themselves (they can’t sell the shares), but clearly they can throw their weight behind a smaller player whose activism they approve of.

It raises another interesting issue about shareholder democracy – did BlackRock ask all the people who invest in its index trackers whether they wanted to back this particular vote? Clearly not. (You can read more on this here, it’s an issue I can see us returning to).

And while Shell plans to appeal the decision against it – and its enforceability is unclear – it’s a very obvious marker of the direction things are moving in, as Helen Thomas points out in the FT. “There is little doubt this judgement will increase the pressure to be more ambitious on climate change pledges – and it provides the tools for further legal challenges.”

So what does all of this mean?

The consequences of making it harder for Big Oil to produce oil

Let’s start with the obvious point. If you make it harder for oil companies to produce oil, then there will be less of it around. If there’s less of it around, it will cost more than it otherwise would have.

And as Louis Gave of Gavekal pointed out before this ruling, “growing ESG constraints and restricted access to capital mean that Western oil firms are not exactly falling over themselves to drill new wells, or deploy new rigs.”

Now, as highlighted by the FT’s Javier Blas on Twitter, “Big oil will likely have to reduce capex even further” with Exxon and Chevron following “Shell/BP into managed output decline. That’s bullish oil price”.

Secondly, the oil companies who are allowed to meet demand – that is, the ones run by Saudi Arabia, Russia, Iran, and all the other cuddly members of oil cartel Opec-plus – will reap the benefit of that, assuming they can maintain a bit of discipline when it comes to pumping the extra oil.

I’m still not keen to invest in Saudi Aramco or Russia in general, but I make those arguments from an ethical point of view (I have an increasingly old-fashioned attachment to democracy and relatively secure property rights) rather than a valuation one. Investors with a different view to mine could certainly be forgiven for investigating further.

Thirdly, it boosts the argument that investors should consider the western Big Oil majors as a tobacco-style investments. Put simplistically – their growth prospects might be limited, but they are still throwing off piles of cash while their existing business gradually runs down, and they have nothing to spend that cash on.

So as an income investment they almost certainly still make a lot of sense. One caveat is to keep an eye on just how far they go with the “going green” strategy – if the cash starts being splashed on highly speculative “green catch-up” projects then you might have to reconsider.

Finally – and somewhat more troublingly – there may be a risk of putting the cart before the horse here. Raising energy prices is certainly one way to encourage the energy transition. But this is a big task ahead of us. The gap between a “fossil-fuel powered today” and a “green tomorrow” might be bigger than the optimists think.

As a result, the whole green trend might be getting a bit ahead of itself. We’re sceptical that the shift will happen as rapidly or smoothly as some prices imply. What does that mean for investors? We cover that very topic in the latest issue of MoneyWeek magazine – subscribe now to get your first six issues free.

Several large shareholders have signalled that they will support GlaxoSmithKline (GSK) in its battle with hedge fund Elliott Management, giving a “huge boost” to the pharma company’s “under-fire” management, say Alex Lawson and Emma Dunkley in The Mail on Sunday. Elliott is said to be pushing for a “dramatic” new plan that could see the FTSE100 firm “sold off in parts or swallowed up by a foreign rival”. However, BlackRock, GSK’s biggest investor, its fifth-largest shareholder Dodge & Cox,and insurer Royal London have reportedly urged firm’s chairman Jonathan Symonds to carry on with plans to overhaul its drugs pipeline and to spin off its consumer healthcare division next year.

The intervention will provide “some relief” for GSK’s chief executive Emma Walmsley (pictured), and there may be more good news to come, say Alex Ralph and Dominic Walsh in The Times. GSK’s Covid-19 vaccine, which it is developing in conjunction with Sanofi, has showed “positive results” in recent trials. GSK and Sanofi have “trailed others in the race to provide coronavirus jabs”, but may now have a product available by the end of the year.

This shows why GSK should hang on to its vaccines unit, says Lex in the Financial Times. The division is a “crown jewel” that “has increased revenues by 50% and nearly doubled profits in the past four years” thanks to the Shingrix shingles vaccine, while its respiratory syncytial virus vaccine looks promising. Research into the immune system is driving both the vaccines and pharma business. Splitting this up would be “the wrong prescription”.

Climate change is about to trigger “a fundamental reshaping of finance”, says Larry Fink, the chief executive of BlackRock, the world’s largest asset manager. Greatly increased risk of floods or drought poses a threat to “core assumptions” about the way that the modern markets work. “What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in the impacted areas?”

But putting “sustainability at the centre of our investment approach” – as Fink says he now wants to do – may be harder than it sounds for a firm that holds two-thirds of its $7trn of assets in index-tracking funds, says Annie Massa on Bloomberg. BlackRock says that it will start ditching investments such as thermal coal producers from its active funds. However, with trackers, it’s the index compilers such as MSCI who decide what goes into the funds, so changing the holdings will be trickier.

BlackRock will launch further sustainable ETFs and push index providers to create sustainable versions of key indices to provide an alternative. But its most powerful weapon would be its “enormous voting muscle”, says Nils Pratley in The Guardian – that is, backing shareholder resolutions aimed at improving the behaviour of “foot-dragging management”. Here, Fink’s comments are vague, merely saying that the firm will be “increasingly disposed” to do so. That “does not sound like a battle cry”.

Take advantage of the low-cost exchange-traded funds disrupting the market.

For most MoneyWeek readers, the emergence last month of a new issuer of exchange-traded funds (ETFs) in Europe wasn't a big event. The European market is already intensely competitive, with big-name brands such as BlackRock, iShares and Vanguard slugging it out with big asset managers and smaller, innovative players.

So the news that UK giant Legal & General Investment Management (LGIM) has finally entered the mainstream market with a range of "core" main-market index trackers didn't make front-page news.

LGIM's new range prompted comment because its index trackers operate a negative screen: they exclude certain types of stocks. This means the index the fund is tracking excludes stocks on a "future world protection" list. The fund won't include some notorious arms manufacturers, coal businesses and outfits that contravene the UN Global Compact (a non-binding agreement to encourage firms to adopt sustainable and socially responsible practices).

Costs dropping like a stone

But what I found more interesting was the pricing of LGIM's offering. The six new ETFs are all priced at between 0.05% (for the UK and Europe excluding UK) and 0.1% (for the rest of the world, including an Asia Pacific tracker and a US tracker). They compare favourably with products from iShares and Vanguard. One of the latter's biggest tracker funds is based on the FTSE 100 index and costs just 0.06%.

In fact, the cost of ETFs is dropping like a stone. Over in the US, big issuers such as Fidelity have been shouting about their zero-fee ETFs, while in Europe the battle seems to be about getting the pricing of mainstream trackers below 0.1%. All of this raises a tempting prospect. Investors should now be able to put together a portfolio of main-market index trackers, including ones that invest in the US, the UK, Europe, Japan and Asia Pacific (ex-Japan), for an average price of less than 0.1%.

At this price, robo-advisers and digital wealth managers face an awkward question: why invest in their products (for charges of around 0.50%) if you can do it yourself for under 0.1%? You should also be able to stuff this portfolio full of ETFs by different issuers, so you won't be entirely dependent on iShares or Vanguard. LGIM's intervention raises the stakes in this price war and throws in a simple exclusion screen for next to nothing.

The other key issue raised by the LGIM launch is that, in future, you'll need to look much more closely at the index your fund is tracking. LGIM is using a fairly unusual index series that tracks the main asset classes but doesn't use a well-known index provider such as MSCI, FTSE or S&P Dow Jones. So, for instance, with the UK version of the range you're not tracking the FTSE 100 or FTSE All-Share. Instead, it's an index that looks and feels like the FTSE, but which is managed by a small index provider called Solactive.

Why pay for the index brand?

LGIM has done this because mainstream index developers charge a substantial amount of money to license their brands. These global index firms are highly profitable, boasting sky-high operating margins. If you're only charging a handful of basis points for running an ETF, why hand over some or most of those basis points to a big brand?

In effect, our money is increasingly being used to pay for big brand names to maintain their oligopoly. This model is ripe for disruption, and the answer might be self-indexing (where the issuer runs their own index) or bringing in smaller index firms who work with the issuer (the LGIM model). As these alternative models proliferate, investors should expect the fees charged on big, main-market ETFs to start to tumble below 0.05%.

Activist watch

Nestl is facing the accusation that its corporate governance set-up is hampering growth, says Leila Abboud in the Financial Times. Corporate governance practice in the UK and US "typically frowns upon" chief executives becoming board chairmen and overseeing their successors, which has been the situation at Nestl for decades. Activist investor Third Point, which owns 1.25% of the group, has now suggested that chairman Paul Bulcke, Nestle's chief executive from 2008 to 2016, "seems too comfortable with the status quo", which risks "holding up the pace and magnitude of change".

Short positions... passive investing has gone too far

Index-fund assets invested in stocks now total some $4.6trn, while total index-fund assets have surpassed $6trn (these are funds that merely track the market rather than trying to beat it). But what happens when the index fund becomes too successful for its own good, asks Jack Bogle, creator of the first index fund and founder of passive-investing giant Vanguard, in The Wall Street Journal. If historical trends continue, a handful of giant institutional investors will one day hold voting control of every large US corporation.

Public policy cannot ignore this growing dominance, and must consider its impact on the financial markets, corporate governance, and regulation, says Bogle. "I do not believe that such concentration is in the national interest." Tentative solutions to the problem, he reckons, include more competition from new entrants to the index field, and forcing giant index funds to spin off their assets into separately managed entities.

If you're a fan of star fund manager Terry Smith's no-nonsense investment style, then arguably a possible opportunity has opened up in his Fundsmith Emerging Equities Trust, says Gavin Lumsden on Investment Trust Insider. On Monday the shares were trading at 3% below their net asset value, which is "unusual" for a £308m trust that has traded at a premium for much of the past four years.

The discount has emerged after the trust's share price failed to keep pace with a sharp recovery in the portfolio following the market downturn in October. Smith has clearly not delivered in emerging markets in the way he has in developed markets with his flagship fund, says Lumsden. "I would urge anyone thinking of piling in to consider its underperformance of the past three years" first.

Recent months have seen some spectacular moves in foreign-exchange (forex) markets. Switzerland's shock decision to abandon its peg to the euro in January saw the Swiss franc surge almost 30% against the euro in a day. And the US dollar has risen 15% over the past six months against a basket of its major trading partners.

So it's no surprise that investors are more worried about how exchange-rate moves can affect their returns and that's driving a mini-boom in funds that hedge their currency exposure.

There's now $60bn invested in currency-hedged exchange-traded funds (ETFs), according to data from BlackRock, the manager of the iShares ETF range, up from just $10bn at the end of 2012. Over $13bn went into these funds in the first two months of this year alone. But does it make sense to hedge your currency exposure, or is it likely to result in lower returns?

Taking a view on currencies

The most obvious reason we might choose to use a currency hedge is because we have a strong opinion on what a currency is likely to do. Imagine that we plan to buy Japanese stocks because we think that the Bank of Japan's quantitative easing (QE) policies will help to boost the stockmarket. However, we also believe that QE will cause the yen to weaken.

So we invest using an exchange-traded fund (ETF) that hedges its yen exposure.Let's assume that the Japanese market then goes up 10%, while the yen weakens 5%. Our currency-hedged investment gives us a return of 10% in sterling terms, while an investor who didn't hedge would only gain 4.5% so deciding to hedge has meant larger profits. Of course, if the market had dropped 10%, while the yen gained 5% instead, we wouldn't have had the benefit of the strong yen trimming our losses so this can work both ways.

The important point here is that we are consciously taking a view on the direction of the currency that the yen will get weaker and we're looking to incorporate that view in our investment decision. Of course, predicting currency movements is more a matter of luck than judgement and we stand a good chance of being wrong. But if we're confident in our forecast, currency hedging here is more consistent with our overall investment view than not hedging. Conversely, if we expected the yen to strengthen for whatever reason, it would be more consistent not to hedge.

Avoiding the unexpected

However, this scenario is quite unusual. We often won't have a strong conviction about the outlook for a specific currency. Yet we know from history that exchange rates can have a large impact on returns over time. For example, from 2002 to 2007, when the pound was strengthening against the dollar, the S&P 500 returned 67% in US dollar terms, but 36% in sterling terms. Over the next five years after the pound peaked, the opposite happened: the S&P 500 lost 3% in US dollar terms, but still showed a profit of 19% in sterling terms. Given that, we might want to hedge simply to reduce the risk of unpredictable losses from currency moves. By doing so, we give up the equally unpredictable possibility of currency gains. And we will incur expenses: currency hedging costs money, even if the impact should be minimised when investing in a fund that can use low-cost ways of hedging. But we may feel that the reduced risk makes this worthwhile.

Whether hedging turns out to be beneficial will only be obvious in hindsight. But a recent paper* by Sanne de Boer of QS Investors (part of US fund group Legg Mason) offers a fairly comprehensive test of the impact over the last few decades. De Boer looked at the outcome from hedging stocks across six currencies between 1979 and 2013. She found that hedging slightly reduced long-term returns, but improved risk-adjusted returns as measured by the Sharpe ratio (returns relative to volatility). This implies that if it's important to protect our capital during times of market turmoil, hedging is the way to go.If we can stomach the ups and downs, choosing not to hedge should give us higher returns.

Selective hedging

However, there are some nuances to this. Hedging all foreign-currency exposure did not always give the best trade-off between risk and return. The ideal hedge ratio varied depending on the investor's home country and the country they were investing in. The more cyclical their currency was meaning the more it tended to rise and fall in line with global stockmarkets the smaller the benefit from currency hedging. That's because exchange-rate movements can provide a natural hedge for countries with cyclical currencies (if our home currency tends to weakens as global stocks fall, it helps cut the losses on our foreign holdings).

So an investor who wants to balance risk and return should hedge selectively. For example, from 2008 to 2013 a UK investor who held equal amounts of the other five countries in the study would have done best by hedging around 60% of their exposure, as the chart above shows. However, that would have consisted of hedging all their Australian and Canadian holdings, most of their European exposure, but almost none of their US positions. A Japanese investor did best hedging almost everything, while an Australian should have done relatively little hedging mostly of other cyclical currencies, such as the Canadian dollar. As the chart illustrates, the optimal hedge ratio changes over time, so the exact numbers may not be a perfect guide to the future. But the broad principle of hedging currencies that are more cyclical than your own seems to be a useful rule of thumb.

*Smart currency hedging for smart beta global equities, Sanne de Boer, October 2014, qsinvestors.com