This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Samantha Hurditch of BNY Mellon explains some alternative options for your ISA portfolio.
Commercial Property
Commercial property includes a wide range of buildings such as shopping centres or office blocks. Commercial property funds can be a useful source of returns, offering both income through the rents and capital growth potential if the value of buildings or land rises.
The risk of such investments is that buildings may remain vacant – meaning that no rent is received – and land values can decline as well as rise. In addition, it can be difficult to sell buildings in a rush, which can sometimes be necessary if the owners of the building need to gain access to money at short notice.
One alternative is to invest in a property securities fund. These funds invest in the shares of property companies that are traded on the stock market. Naturally, these investments are subject to the same risks as any investment in company shares.
Commodities
Commodities are usually divided into ‘hard’ and ‘soft’ commodities. Hard commodities include metals such as gold or steel and energy sources like oil and coal. Soft commodities include crops such as coffee and cocoa or produce such as meat. Private investors generally gain access to commodities markets by investing in funds managed by professionals. Because they can perform in a contrasting way to other investments such as government bonds, commodities are a useful way to diversify. However, commodities remain one of the more risky types of investment precisely because they are traded on markets, and therefore prices can fluctuate.
Government Bonds
Almost all governments need to borrow money; and one of the ways they do this is by issuing bonds. By purchasing government bonds, an investor is effectively lending money to a government, which agrees to repay the full amount lent back to the investor on a specific date in the future, and to make regular interest payments at predetermined intervals.
While government bond prices tend to fluctuate less than some other types of investment, they are not immune from the impact of economic influences. There are various types of bonds, such as inflation-linked bonds, which have different characteristics and will respond in different ways to specific economic influences. It is also important to remember that investments in bonds issued in foreign currencies carry additional risks; changing foreign exchange rates can have a material effect on the value of investments.
Morningstar Disclaimer
The views contained herein are those of the author(s) and not necessarily those of Morningstar. If you are interested in Morningstar featuring your content on our website, please email submissions to UKEditorial@morningstar.com.
