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Long-term investors eye ‘bombed-out’ resources stocks
Neil Gregson, manager of the £2.2 billion JPM Natural Resources fund, is confident that hard-hit share prices are 'reaching the bottom'.
It’s a ‘bombed-out sector with bombed-out valuations’, but long-term investors are starting to creep back into resources companies, says Neil Gregson, the manager of the £2.2 billion JPM Natural Resources fund.
Gregson, who took over the Citywire Selection fund from Ian Henderson at the start of this year, inherits a fund which has underperformed its benchmark over the past year, with a -30.5% return. However, the fund has outperformed historically, up 27.3% over three years.
The fund’s underperformance coincides with a sell-off in commodities amid growing concerns about the state of the global economy, particularly Europe's unresolved debt crisis, the shaky US recovery and China's slowing growth. Resources equities have fallen at the same time.
‘Nobody is recommending the sector – all strategists are defensive, there’s plenty of bad news out there, and it’s all in the price. We would certainly look forward to some healthy improvements in the future,’ Gregson says.
While reluctant to call the very bottom, Gregson said on a conference call that ‘it feels like were bouncing along the bottom here now – there are signs of life,’ including growing M&A activity in the sector.
‘Value investors are now coming back into the resources sector, mainly out of the US and Canada that recognise the macro issues but also recognise deep value – there is some broad, long-term fundamental money coming in. That with M&A activity means there is a sense of reaching the bottom.’
But he said that, like all equity market sectors, resolution is needed over Europe’s crises before shares can really rally.
In particular, Gregson – a former mining engineer – believes the large outperformance of the gold price over gold equities will narrow. ‘Gold shares are very cheap, probably the cheapest they’ve ever been in past 30 years.
‘We put a bit more into gold sector in the spring months’
Gregson is willing to bet some of his children's inheritance that the fund’s performance will turn: ‘I bought some more units for my kids – I do feel that confident we’re going to make some money.’
Citywire’s Frank Talbot recently interviewed Gregson on camera. Watch the video here.
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