Today, we are excited to launch a three-part Q&A with Dr Johnny Hon, Chairman of The Global Group, UK Investor Show’s fantastic headline partner. Over the coming months, via these 21 questions, you will get an insight into Dr Hon’s thoughts on everything from the British Investment Market, Sustainable Investing, and the importance of ‘seed funding’ for start-ups. This is a series not to be missed, so keep an eye on our website and social channels for when the next will be released. All that leaves us to say is, enjoy part 1 of this insightful Q&A.

1. What most interests you about the British Investment Market?
The British Investment Market has undergone a drastic change in the past year due to Brexit and Coronavirus threats, however vast opportunity and interest remains. Regional legislative changes and reliance on technology has become a new trend in the British Investment Market opening up more Fintech and other innovative investments and using the block chain business strategies. I closely watch and remain highly interested in luxurious assets, such as racehorses and artworks, which can be easily owned by the general public by way of tokenization of assets. Tokenization with an investor protection regime will also promote a new era of investment.

2. In your opinion, what strategies would you advise private investors to implement when investing large sums of money?
We understand that most investors adopt a risk management approach in respect of their investment decisions, especially those who deal with large sums of money. Based on past experience, we suggest that it is best to diversify investment risk by investing in various sectors and sizes of firms, from entertainment to technology and so on. We advise potential investors to conduct research on new industries and markets, and to invest in stages or cycle instalments. This ensures that the target company utilises the funds as proposed and investors are at liberty to decide whether or not to continue with the investment.

Dr Johnny Hon presenting at The Global Group UK Investor Show 2019

3. What are the key skills that new private investors need when setting off on their investment journey?
I find that investors who are passionate about the investment arena, who embrace change and are excited to learn new industries, are the ones that find not only success but gain a lot of pleasure out of their investment portfolio. Our method to success is to keep exploring and learning about new up and coming industries, such as fintech, AI and biotechnology, and then grab the opportunity to invest in them. At Global, we tend to learn from traditional industries but help them to develop and grow by implementing new technology elements. As investors, we must be educated in our preferred investment industry and be ready to bring innovative solutions to even further enhance the opportunities in front of us.

4. What is your view on sustainable investing?
Sustainable investing continues to rise and more than ever investors are compelled to put their money
into sustainable investments that not only capture financial returns but also align with their personal values. I am very pleased to see this trend and support it entirely. Global Group has always been a company with a goal to give back and we direct our business ventures towards opportunities that do good for the world and society as much as possible. Socially responsible business practices are already reflecting a very positive impact on the environment and society, and I am pleased to embrace the opportunity to make a positive imprint on the world.

5. Which emerging economies excite you the most?
With so many opportunities yet to be found, Dubai’s economy has been the most exciting market that I look forward to exploring more this coming year. As known by many, the Dubai government entity has decided to launch the Crypto Valley which is to include a variety of services for early-stage startups, co-working facilities, and so on. This launch will present a very important opportunity for investors around the world and will be able to benefit the country’s economy with a range of features. For example, Crypto Valley creates a tax-free zone that offers 0% personal and corporate income tax. While this already sounds very exciting, this launch is approved by the Dubai government with a further usage of its own blockchain-based cryptocurrency, ‘EmCash’. This zone will include a variety of services to help early startups such as funding and mentoring among others. If the launch is successful, this would further benefit Dubai’s economy as the increase of successful startup businesses would also reflect in an increase of the country’s GDP. In short, it would benefit Dubai’s economy in the long term. The potential of this launch is endless. This is very exciting news and I can’t wait to see the opportunity that it will present, not to mention how this launch will contribute to the further growth of Dubai’s economy.

Dr Johnny Hon striding into the 2019 Global Group UK Investor Show

6. Do you still consider oil and gas a viable investment option or should investors move further towards newer technologies?
Fossil fuels remain essential to modern lives, albeit with diminished importance. Yet, impact investing has gradually taken the reins in the financial world with hundreds of millions of investor funds pulled out from carbon-heavy companies. As market sentiment tends towards fossil fuel divestment, especially in times of coronavirus, the plunge in demand has and will continue to exert downward pressure on industry stock prices. We, being a value-seeker in the private equity market, invest in the future and the betterment of our generation, and we would therefore recommend investing in newer technologies within the clean energy sector of which profit margin and long-term return will likely be higher.

7. What are your thoughts and tips for investing in cryptocurrency?
Cryptocurrency is a growing trend for exchanging goods and services. Unlike traditional bitcoin that could fluctuate and have a higher security risk, cryptocurrency is used to tokenise certain assets, such real estates. Potential investors could buy these tokens and act as a tool of investment on that certain asset.

The summer of 2019 was not a good one for the pharmaceutical industry, with August 26th marking one of the darkest days in the sector’s history.

A court ruling in Oklahoma found that Johnson & Johnson, one of the biggest brands in pharma, was guilty of marketing its drugs containing opioids as being non-addictive.

This was despite the US Food & Drug Administration telling the company to stop doing so and is just one of around 2,000 opioid-based legal claims made against Johnson & Johnson in the US.

Pending cases have been brought by government agencies and private individuals alike, and the Oklahoma verdict could have huge implications in terms of yet more legal claims being brought in the months ahead.

This ripple effect might not only impact Johnson & Johnson, but some expect it to spread throughout the sector to affect other drugmakers as well.

For investors, this raises risk and uncertainty akin to the mis-selling scandals seen in financial services in the past decade or so, and could make pharma the industry to watch as we move into the 2020s.

What are the implications?

The Oklahoma case was literally a matter of life and death, with Judge Thad Balkman citing an increase in addiction rates and deaths due to opioid overdose that paralleled the rise in opioid sales in the state.

He added that this followed a misleading advertising campaign by Johnson & Johnson that persuaded consumers to consider opioids as a safe and suitable way to treat chronic pain and, crucially, that they were not addictive.

But the verdict fell well short of the $17 billion compensation prosecutors were seeking. In fact, Judge Balkman awarded less than $600 million, which is to be used to support affected opioid addicts in seeking treatment.

To put the number in context, it’s around three-quarters of one percent of Johnson & Johnson’s total revenues for the year to the end of June 2019 – more than $80 billion.

Even in terms of net income, the company reported $16.3 billion for those 12 months, making the fine about 3.5% of that figure.

So this individual fine is of relatively little concern compared with the future threat of thousands more opioid-related claims being brought against the company and the wider pharma sector.

It’s also worth remembering that this case applies only to Oklahoma; there are 49 more US states, each of which could seek a settlement from Johnson & Johnson of a similar size or larger than the amount awarded in this instance.

Assuming future fines could be anywhere between the $570 million awarded here and the $17 billion prosecutors asked for, that’s a wide range of uncertainty for pharma investors to predict.

Bigger fish

While Johnson & Johnson is a household name in pharma, it’s not in the top ten producers of opioids in the US.

Top of that list is SpecGx, which produced nearly 29 billion opioid pills in 2006-12 according to Drug Enforcement Administration data, and Actavis Pharma which manufactured nearly 26.5 billion in the same period.

Together, the two brands produced nearly three-quarters of opioid pills manufactured in the US during that time, and each holds a market share of just over a third.

For investors in those organisations and others in the top ten, the Johnson & Johnson ruling is a legitimate cause for concern – and some of the top-ranking brands, such as Purdue Pharma, have already been driven into bankruptcy by opioid-related settlements totalling into the tens of billions of dollars.

With fines and settlements likely to reflect the companies’ market share, it’s a directly scalable problem, so size is no insurance policy against the total value of claims that could be made: nobody is immune.

Where to find safety in pharma

The solution to finding safety in the pharma sector right now is relatively simple – avoid opioids.

That not only includes the major manufacturers, but also the pharma firms and retailers in the sector who distributed substantial quantities of opioids in recent years, even if they did not produce the pills themselves.

Merck is one option, as the company has vocally set itself apart from the opioids market and remains a widely recognisable pharma brand.

Another alternative is to get out of the human medicines market completely. Animal pharma has been a booming sector in recent years with brands like Zoetis posting stock value growth of over 50% in 2019.

For investors who are concerned about the medium-term implications of the Johnson & Johnson Oklahoma case, this could offer a lucrative alternative until the human pharma industry finds its feet again.



Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

To anyone who has held an investment portfolio over the past decade, the suggestion that financial services providers like insurers and banks are a good option in gloomy economies might sound absurd.

In 2007-08 it was the financial sector that precipitated the global recession via the sub-prime mortgage lending crisis and the credit crunch that followed, and confidence in the sector has not been helped by scandals like endowment mortgage mis-selling and PPI.

Bank bailouts by the UK and US governments at that time throw further negative light on the financial services sector in troubled times – so with some economists now expecting a return to recession in the UK, should you be investing in banks?

Identifying evergreen investments

One way to reduce your exposure to the impact of a recession on the financial services sector is to invest in the companies that are likely to thrive no matter which direction the economy turns over the next decade.

That doesn’t necessarily mean firms that bet against the economy, but can also include those that form part of the inevitable underlying trends in the banking and insurance sectors.

For example, some of the emerging trends in financial services in recent years include:

  • Greater use of artificial intelligence.
  • Increased digitisation of banking services.
  • Security and especially cybersecurity.
  • Steady progression away from cash.

Some of these clearly overlap, for example, the use of smartphones for contactless cashless payments has implications for digitisation, cybersecurity, and cashless transactions, and may even have relevance for the use of artificial intelligence in providing that service.

Steer clear of the mainstream

The best prospects in the sector, especially if another recession hits, are unlikely to be the major UK high street banking brands.

Long-term historic low-interest rates are not good news for investing in traditional British banks, and an impending recession would likely subdue their value even further.

Instead, alternatives like pure online banks and mobile-focused banking apps could be the way to go, as they are better placed to adapt to developments in new technology and AI, as well as responding to cybersecurity concerns.

Huge multinational banking corporations tend to suffer from inertia in the services they offer and the technology they use; smaller, more agile challenger brands can more easily embrace the pace of change and even introduce additional disruption into the market.

With interest rates still unlikely to skyrocket in the foreseeable future, these challenger brands and tech-focused finance firms may still find ways to add value and reap returns for ambitious investors.

Burning the banking tech candle from both ends

Between the banks that are net customers of emerging financial services technologies and the firms that are net developers and suppliers of it, the sector represents a double growth opportunity for investors.

The large banking groups are increasingly recognising the growth potential that comes from technology, along with the cost-cutting opportunities, increasing demand for AI and other advanced financial software.

Meanwhile, developers are continually working on the next innovation in banking tech, ensuring that this momentum is maintained and newly disrupting the market so it cannot become stale.

Relatively well-established technologies include electronic payments processing and as we continue to move away from cash as the default method of buying goods, brands like Mastercard and Visa could be among the lowest-risk investment options.

Meanwhile, in the insurance sector, newly developed AI technologies are allowing a growing proportion of insurance claims to be processed automatically, cutting costs and increasing business volumes.

This ability to reduce operating costs while simultaneously improving service delivery is again a double bonus for insurers, and AI software is doing for the services sector what mechanisation previously did for manufacturers.

While that may hold negative implications for those who work in the financial services sector, it’s positive news for investors, and these innovative, adaptable brands are likely to thrive whatever happens in the wider global economy during the 2020s.



Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

With the Conservative government restored to an outright – and substantial – majority, what does that mean for Foreign Direct Investment (FDI) into the UK?

In October, Boris Johnson told the Conservative Party conference that FDI into the UK was at a record high of £1.3 trillion, the highest of any EU member state.

This raised some eyebrows ahead of the then-deadline of October 31st on which the UK was scheduled to leave the EU with or without a deal.

But with Brexit now appearing likely to happen once again, is FDI set to fall or can those record highs be sustained?

Calculating FDI

Like many economic indicators, there are several different methods used when calculating the official total FDI into the UK by overseas investors.

Two of the main measures used are:

  • Stock: The amount of equity held by foreign investors at a specific time.
  • Flow: The value of investments made overseas during a given period.

The key difference between the two is that flow is a total overtime, for example over a period of 12 months, whereas stock is a snapshot of foreign investors’ equity at a moment in time, typically the end of a year.

In actual fact, the stock value for the end of 2018 calculated by the UN Conference of Trade and Development and published in June 2019 was nearly £1.5 trillion – well over the £1.3 trillion figure quoted by Johnson in October.

He was correct to say that this was the highest in the EU, and worldwide only Hong Kong and the US secured greater FDI in 2018 in stock terms.

Go with the flow

The flow measure for 2017-18 in the UK makes slightly less positive reading – in fact, the calculated value was a net decrease of 36% over the year.

UN figures showed new equity investments down by half off the back of larger falls in the previous year.

Taken together, the drop in FDI flow into the UK in 2016-18 was over £100 billion, a fall of nearly two thirds.

But this too was off the back of a significant year, as FDI flow into the UK had spiked substantially in 2016.

Flow is by definition a measure over time, and not a snapshot, so it’s sensible to look at the bigger picture when interpreting this value.

Over the long term, the results for 2017 and 2018 were not so bad when considered as part of the historical data, rather than in isolation.

What happens next?

The dust of the general election result is still settling, but data from the Department for International Trade published earlier in the year hints that 2018-19 could be another poor year for UK FDI flow.

Its research showed that major FDI investment projects in the UK fell 14% between 2017-18 and 2018-19, creating 24% fewer new jobs along the way.

Political uncertainty is generally a negative influence on investment. Following the Conservatives’ substantial gains in the general election, the value of the pound rose significantly overnight and on the morning of Friday, December 13th, 2019.

An outright majority indicates that there should be greater political stability in the UK in the months ahead.

That increases the likelihood that Brexit will be completed early in 2020, whether with or without a deal and decreases the chance of another general election until the end of the new parliamentary term in 2024.

For overseas investors, all of that should, in theory, increase confidence and could help to attract greater levels of FDI into the UK once again.

Brexit and beyond

Assuming the general election result leads to a relatively rapid resolution of the ongoing Brexit debate, the UK will soon cease to be an EU member state.

There may be a transition period if the UK government votes to accept Johnson’s Withdrawal Agreement, and negotiations will begin on future trade arrangements with the EU and third-party countries.

It’s still impossible to predict what this will all mean for the UK economy; however, it appears the appetite is still there among overseas investors.

For those outside of the EU, the UK’s departure could make it even more appealing as a destination for FDI, particularly depending on any tax deals that are struck as part of future trade negotiations.

The decisive election result has put to bed the UK’s hung parliament, at least until the next fixed-term parliamentary session comes to an end; now as Brexit comes to a head, the future landscape for UK FDI should finally take shape too.



Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Throughout history, people have wanted to do the right thing, from the Hippocratic Oath taken by doctors to “first, do no harm,” to Google’s infamous mission statement “Don’t be evil.”

But there are ethical dilemmas to face when it comes to turning a financial profit from doing good – which is why many worthy causes operate as non-profit entities and charities.

Impact investing is a relatively recent emerging trend, built on the backs of sustainable, ethical and eco-friendly investments over the preceding decades, and tapping into major trends in the 21st century like human rights in emerging markets and environmental concerns globally.

There’s even an annual awareness drive, Good Money Week, which takes place each October and aims to encourage more people to invest in companies and stocks with clear ethical credentials.

And it’s not limited to investing in stocks and shares, either. Good Money Week spans the entire financial services sector, from current accounts to pensions and everything in between.

Yet despite this, ethical funds account for less than 2% of total UK investments – so there’s a long way to go before impact investing and its equivalents become the mainstream market option.

Do impact investments perform well?

To really hit the mainstream, impact investments need to perform on a par with their conventional equivalents.

Not all investors are driven by altruistic motives, so a large percentage of market share will be profit-driven in the years to come, no matter what concerns consumers raise surrounding climate change, human rights and so on.

But that’s not necessarily a problem. There are already indications that funds that commit to certain criteria on ethical, social and governance (ESG) factors actually outperform the market average – and have done so for the past half-decade or more.

Ahead of the most recent Good Money Week in October 2019, Rathbone Greenbank Investments surveyed high net worth individuals to find out how they prioritise ethical investments, and to what extent they act on those ethics.

The results were a mixed bag for impact investing:

  • 74% held at least one stock that they knew did not meet their own ethical criteria.
  • 45% cited a lack of available ethical funds, while 41% were just diversifying their risk.
  • Yet 81% expressed an interest in investing ethically in the future.

So, the demand is there among individual investors – which the report suggested is likely matched among consumers when it comes to making personal pension investments.

No negative impact

One way the markets are meeting this demand is by offering funds with little to no negative impact, rather than stocks with a specific positive impact.

For example, it’s now quite common to see funds that avoid investing in fossil fuels, petrochemical exploration, tobacco, and other troublesome markets.

It makes sense for funds to do this – with consumer demand growing and a relative lack of supply in the investment sector, those that cater to impact investors’ ethics should reasonably expect to receive greater deposits.

The question is whether this relatively high demand and/or relatively low supply can continue – ironically, whether or not the impact investment market itself is sustainable.

But with an increasing amount of money flowing into ethical investments across all sectors and right around the world, there is still plenty of ground to be gained before supply starts to exceed demand for impact investment options.

Sustainable stocks and pension profits

While it can be tempting to associate ethical investment with the younger generations, one area where sustainability aligns well is with saving for retirement.

Sustainable stocks are by definition more likely to continue trading successfully over the long term, and that can make them a good candidate for investment by managed pension funds.

Ethical pensions tap into that consumer-side demand, which is one area of the potential market size that has yet to be fully developed and which again could help to add some much-needed percentage points to impact investing’s market share.

For career investors, good stewardship on environmental and ethical factors can translate into higher confidence of careful financial management too, making sustainable stocks a more tempting proposition.

Investing for positive impact

If ‘no negative impact’ is not enough, there are options that allow for positive impact investment instead.

Some of these combine the positives with avoiding the negatives, such as Rathbone’s Ethical Bond Fund, which excludes alcohol, tobacco, gambling, animal testing, mining, nuclear power, weapons, and adult entertainment, while specifically including only stocks that demonstrate at least one positive impact for society, the environment or corporate governance.

Alternatively, there’s the Pictet Global Environment Opportunities Fund. This supports organisations that are actively addressing environmental challenges. Companies must also meet certain safety criteria in nine categories including biodiversity and climate change.

The richness and complexity of the impact investment sector is increasing all the time, and that gives investors – both individual and institutional – more options with a greater chance to align with their own ethics.

Whereas in the past, there may have been poor availability of funds that closely matched consumers’ and investors’ priorities, we may be at the tipping point beyond which impact investing becomes a realistic option market-wide.

If so – and if supply can continue to grow to meet the full level of demand that’s already out there – we could see impact investments snatch a much more significant share of total funds under management and really hit the mainstream in the coming decade.


Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

If you’ve won, inherited or saved £10,000, you might reasonably wonder where is the best place to put it.

Of course, there’s no one simple answer as to how best to invest £10,000, as it depends on your personal circumstances – such as how much of the money you can afford to lose and when you expect to withdraw it – as well as on market conditions.

Do you want to add steadily to your savings over the long term, or are you looking for a quick return? And do you want to beat inflation so that your investment grows in real terms, despite the rising cost of living?

The more you hope to return, the greater the level of risk you are likely to face and the longer you will need to set your money aside.

So with all of those factors in mind, here’s how best to invest £10k for a variety of personal circumstances – and remember always to check the current markets and make your own decision, as conditions change all the time.

Choose your risk level

Before you put your money anywhere, decide how much risk you’re willing to take on. This often depends primarily on how much of your money you can afford to lose, and you should never speculate with money that you need to pay essential bills and living costs.

Some of the options include:


  • Cash ISAs and savings accounts with a fixed interest rate.
  • Long-term savings accounts that lock your money away for a year or more.
  • Stocks and shares ISAs that can both gain and lose value over time.
  • Funds such as ETFs that track a relatively broad sector or economy.
  • Pension funds that lock your money away until you retire.

You can see the kind of spectrum that is available. Some options do not put your initial investment at any likely risk – even if your bank collapses, cash savings accounts are usually protected by the Financial Services Compensation Scheme.

In other cases, your initial deposit might be locked away for a specified period of time, and you could lose some of your capital gains if you make an early withdrawal. On most stock market products, your initial deposit is at risk if your stocks and shares fall in price, too.

The level of risk you take on is very personal. It can depend on factors like how much other savings or regular income you have, how close you are to retirement, and how much value you want to gain on your investments.

However, you don’t have to invest all of your money into one account – you could instead spread it around, with some in high-yield but high-risk investments and the rest adding value more steadily in a conventional savings account.

Tax-efficient savings

Tax is a big factor in deciding where best to invest £10k. There are a variety of tax-efficient savings accounts available, such as the Lifetime ISA, which comes with a 25% bonus contribution from the government.

Again, the exact types of bonus ISAs and the amounts available change regularly, so always check what’s currently on the market.

But these can be a good option for younger people. They’re often designed to help with saving towards a deposit on your first home, or for the longer term as tax-free retirement savings.

Remember that with an ISA, you get a new tax-free allowance each financial year. So if you’ve already made substantial deposits this year, it might be worth splitting your £10,000 into a couple of payments.

This way, you can use up any remaining allowance before April 6th while making sure the rest of your money goes in after the new tax year starts so you don’t get taxed on it either.

High earners

If you earn more than the higher rate threshold for tax (£50,000 in recent years) you might benefit more from the tax relief available on a Self Investment Personal Pension, or SIPP.

You usually cannot access the money in your SIPP until you reach the minimum retirement age, which is ten years before the state pension age.

So be aware that if you put your full £10,000 into a SIPP in your 20s or 30s, you could be looking at up to about 40 years before you can get at that money again.

But also remember that this is the point of pensions. They are a lifetime savings account designed to grow in value throughout your career, before paying out enough during your retirement to sustain the lifestyle you’re accustomed to.

Higher risk investments

To outpace the rate of inflation, historically your best bet has always been to speculate on the stock market.

At a younger age, you’re better placed to take this risk, as if you lose money on your investments you can leave them to recover for longer and regain a profit.

Diversification can spread this risk across different sectors and global economies. Tracker Funds and Exchange Traded Funds (ETFs) allow you to buy into a basket of stocks and receive capital growth in line with the relevant index or market.

Some investors choose to go it alone, buying specific stocks and shares they believe are poised for growth.

This is even higher risk, especially if you plan to focus on companies you expect to grow in value massively in a very short period of time.

However, the pay-off can be significant if you get it right. Just be careful you don’t risk money you can’t afford to lose, as these stocks are more likely to fail as well.

Investing in a trend

If you want to keep your investment portfolio interesting on a personal level, consider investing in a trend or topic that’s close to your heart.

This might not yield the most added value, compared with just going where the money is, but it can allow you to buy into funds that you are passionate about.

Obvious examples right now include ethical, sustainable and environmentally responsible funds, those with a focus on human rights, or those that support small businesses.

Many of these funds post relatively strong positive growth and as consumers continue to back trends with a positive impact, that could translate into more growth in the years to come.

Be wary of brand new investments with no proven historical performance – they’re not always bad, but it’s harder to be confident about the promised returns.

And watch out for bubbles, such as the dotcom bubble around the Millennium, which cost many investors dearly as they went all-in on a booming digital market that proved to be unsustainable.

Set goals

Finally, know what your end goals are. In a pension, for example, you might want to aim for a specific total fund size or to achieve a certain annuity or annual income after retirement.

In shorter-term savings accounts, you might want to save enough for a large purchase, such as using an ISA to save a house deposit or to buy a new car.

At the end of the day, it’s your money to spend on enjoying your life as you wish. If you’re happier spending it on holidays, make sure you can withdraw up to a few thousand per year.

If you’re starting a family, consider saving for when your child reaches the age of 18, as any financial help you give them at that point can be worth so much more over the rest of their lifetime.

Or if you’re nearing retirement, look at ways to maximise your savings over the last few years of your career. Even late in life, £10,000 can yield good value in the short term, without taking on an unacceptable amount of risk.

And don’t be afraid to spend. Inheritance tax will eat away a substantial chunk of any legacy you leave anyway – so enjoy yourself. You’ve earned it.


Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

If you want to invest in commodities without being exposed directly to the kinds of geopolitical events that can introduce instability and volatility into the commodities market, you might want to think about putting your money into commodity stocks instead.

These offer indirect exposure to the assets that underpin the commodities sector. As part of a risk-averse portfolio, they can offer better rates of return, compared with being directly exposed to the commodities themselves.

Purchasing commodities directly can also carry additional costs; few investors ever intend to take delivery of the commodities they buy for investment purposes, but in some circumstances you could be faced with costs for storage or the need to dispose of contracts below market value in order to avoid taking delivery.

Why buy commodities directly?

Buying commodities directly is part of an industrial strategy to gain ownership of a valuable commodity at present-day prices, in order to avoid paying more for it later.

For investors, buying commodities now is a gamble on prices going up in the near to mid-future, at which point the intention is usually to sell the commodity on to an industrial buyer who actually wants to take delivery.

About a third of global investment in commodities takes this direct physical form. For the remaining two thirds, transaction volumes and value arise from indirect investment into commodities.

Why buy commodities indirectly?

Investing indirectly in commodities allows investors to tap into shifts in supply and demand. Again it is essentially a gamble that supply will drop, demand will rise, or both.

If the net balance shifts towards greater demand and mining companies or refineries are unable to meet that demand, prices are likely to rise, leading to positive gains for those who invest in the relevant commodity indirectly.

This is typically a medium to long-term strategy, although in certain circumstances a severely undervalued commodity can reap short-term returns as it returns quickly to its full market value.

An example of this is when supplies are interrupted due to a political event or natural disaster, which can leave industrial buyers scrambling to snap up whatever supplies they can get, often at a price that is inflated substantially in the short term.

Investing via commodity ETFs

Exchange-Traded Funds, or ETFs, have become increasingly popular investment vehicles in recent years.

They typically track a sector or index and offer a relatively hands-free way to invest with good diversification and risk mitigation.

Investing in a commodities ETF can allow you to buy into an entire sector of mining companies and commodity suppliers.

With lower total transaction fees and less admin than buying into individual stocks in different companies, you can get exposure to companies based all over the world, helping to mitigate against the isolated risks of natural disasters and political upheavals mentioned above.

At the same time, if those kinds of events lead to rapid price rises, your ETF is likely to have some exposure to those gains in value too.

You perhaps won’t get 100% of those gains as you would if you invested in the specific stock yourself, but you also have broader coverage so wherever value arises, you’re in a good position to make some gains from it.

Commodity stocks

If you’re particularly impressed by a specific company working in the commodities sector, buying into commodity stocks is an option.

The isolated risks are greater and if you spread your investment across many different stocks to mitigate this risk, you could face higher transaction fees overall compared with a single buy into an ETF.

But by buying into the companies producing the commodities, rather than gambling on future supply contracts, you also avoid the risk of holding a contract that is nearing expiry or having to take delivery of a physical commodity that you have to sell off at a later date.

How to get into commodities

There are a few factors to consider when buying into commodities for the first time.

The first is what you want to buy. The obvious options are precious metals like gold, as well as major commodities like oil, both of which generally offer positive returns over the medium to long-term.

However, the commodities sector is vast, encompassing ‘hard commodities’ that are mined from the earth, and ‘soft commodities’ that can be grown – and therefore are renewable.

If you’re environmentally minded, you might want to focus more on renewable commodities, especially those that are responsibly farmed.

There are reputational benefits to doing so at a time when consumers worldwide are becoming increasingly focused on the environmental impact of industrial activity, and if you are investing for the long term you might expect this to have a knock-on effect on the value of your investments as we move through the 2020s.

But if you’re driven primarily by value, it’s also worth remembering that a non-renewable resource is much more likely to be in tight supply at a time of high demand.

Try to establish a fair estimate of market value, and of the direction of the market for the commodity you plan to invest in.

If commodity ETFs sound appealing, remember that there are plenty of options even just within that part of the market, including ETFs focused on emerging markets or other specific geographies, specific types of commodity, or eco-conscious operators.

Types of mineral commodity

Mineral stocks allow you to buy into the value of desirable substances that have not yet been mined out of the ground, but whose location and approximate details are known.

These fall into several categories:

  • Inferred minerals offer an approximate estimate of quantity and quality based on relatively minimal sampling and geological exploration.
  • Indicated minerals are detected in greater detail and may have been explored enough for mining activity to be planned and nearing commencement.
  • Measured minerals have been fully explored so that the quantity estimates and quality grades are most likely to be correct when mining begins.

The different categories give investors different levels of confidence when buying into newly discovered mineral deposits.

If you plan to buy into mineral discoveries where mining has not yet begun, you might want to limit your investments to jurisdictions where these categories are tightly regulated by the government, so you have even more confidence about the level of risk you face.

When commodities go the other way

Not all commodities move in the same direction as the wider market. That’s one reason why gold is so popular.

When other metals go down in price, gold often goes up. This is a consequence of its more complicated exposure to investment from different sources.

Gold has industrial applications in electronic circuitry, but it also has sentimental value and aesthetic appeal in jewellery.

For investors, gold coins, bars and bullion are all about weight, while even the global central banks use the precious metal as a physical representation of capital.

Due to all of these different influences, gold can defy the direction of the markets – and as investors know this and look to it as a store of value, this is a self-fulfilling prophecy that is unlikely to change in the years to come.

That makes gold and other negatively correlated commodities an excellent way to hedge your portfolio in uncertain economic times.

Even a relatively small percentage of your portfolio invested in gold can therefore be a sensible risk mitigation strategy, while benefiting from any gains in value that the yellow metal makes over time.


Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.