Citywire printed articles sponsored by:
View the rest of this gallery online at http://citywire.co.uk/money/gallery/a755429
Which commodity funds fared best in the slump?
We reveal the managers who have not only protected but actually added value during the bear market.
by Robert St George on Jun 20, 2014 at 08:19
The combination of fundamental underlying demand, low valuations, relatively high yields and a renewed management focus on shareholder returns is poised to send commodity shares surging.
That claim could have been made at just about any point over the past two years, as indeed it has been repeatedly. But if the sector is primed for a bull run, investors may as well own anything – active or passive.
The prolonged bear phase has revealed those managers who have been able not only to protect but actually to add value during the slump.
In each of the past three calendar years, the MSCI World Metals and Mining index has fallen, most alarmingly in 2013 by 17.3% even as the broader MSCI World index leapt 22.8%. Through that period, the average manager information ratio in Citywire’s natural-resources equity sector is -1.4 – a damning erosion of value for so long a period.
So it is worth highlighting the select few that have emerged from that pit with something to show for it. Just five have posted a positive risk-adjusted performance over that time.
The runaway leader is Citywire AA-rated Pieter Busscher (pictured) from RobecoSAM. What has been his secret? Well, some would characterise it as more of a trick. Busscher’s £83 million Smart Materials fund invests not in miners or oil conglomerates, but in companies focused on innovative alternative materials, the efficient extraction and handling of materials, and recycling.
A typical example is carbon fibre, the tough but lightweight substance increasingly replacing metal for industrial uses. Busscher’s top holding is Hexcel, a leading developer and manufacturer of carbon fibre whose share price has doubled over the past three years.
Second to Busscher in the risk-adjusted table is a manager who has taken a more traditional approach to the sector, Stephen Docherty at Aberdeen. The £140 million World Resources Equity fund his team manages is evenly split in its exposure between materials and energy, with a concentrated portfolio of just 25 holdings topped by Royal Dutch Shell and Vale.
Just behind Docherty in third place is A-rated Joshua Freedman, a less familiar name than his BlackRock colleagues + rated Evy Hambro and Catherine Raw. Unlike them, Freedman runs just one strategy in this sector: Natural Resources Growth & Income. His teammates have suffered from their involvement with their £4.2 billion World Mining fund, which doesn’t have the same income objective.
Fourth is Baring new boy Duncan Goodwin, + rated and profiled in a later slide, while the fifth and final manager with positive risk-adjusted performance over the past three years is his former colleague at Martin Currie Ruairidh Stewart.
Joanne Warner, First State
Warner characterises the commodities market at the moment as one for the patient and contrarian investor, expecting miners’ earnings to stabilise after years of decline rather than shoot up suddenly. However, she is confident that even that mere feat of stemming losses will be sufficient to close the discount on which they trade relative to both the broader market and their own history.
For most of the past few years Warner has emphasised energy stocks in her portfolio over miners, given that the oil price is more resilient than that of industrial metals. However, she has recently become more interested in miners, particularly the hardest-hit small and mid-sized companies, on valuation grounds.
Duncan Goodwin, Barings
Citywire + rated Duncan Goodwin has only just begun managing the £325 million Baring Global Resources fund, but takes a strong position in this peer group of veterans because our data incorporate his longer record at Martin Currie.
At Martin Currie, where he had worked since 2005 and was investment director and head of global resources, Goodwin was responsible for the far smaller £86 million Martin Currie Global Resources fund.
Goodwin replaced former manager Jonathan Blake at Barings, taking on a fund that had underperformed its benchmark over the preceding 12 months.
Goodwin’s seat at Martin Currie has been taken by his former co-manager Ruairidh Stewart. Over the past three months when they have been going head to head, the apprentice has marginally outperformed with a return of 7.2% compared with Goodwin’s 6.6%.
Evy Hambro, BlackRock
Citywire + rated Evy Hambro is perhaps the best known manager in this peer group, responsible for more than £6 billion of assets across several funds.
His sole vehicle in this Citywire sector, though, is BlackRock World Mining – although that is a £4.2 billion juggernaut in its own right. Co-managed with Catherine Raw, the fund’s shorter-term performance is actually better relative to its competitors than its seven-year record.
Hambro has long pushed mining groups to rein in their capital expenditure after years of destructive merger and acquisitions (M&A) activity, and welcomed last year’s series of executive departures and subsequent round of cost cutting and writedowns.
‘With capital expenditure rolling off, management are guiding investors towards rising free cash flows,’ reported Hambro. ‘Many commodities are trading close to or below their marginal cost of production, implying that price downside should be limited, in the absence of a collapse in demand.’
Angelos Damaskos, Sector Investment Managers
Angelos Damaskos has yet to relent in championing small company resource plays, and has succeeded in remaining liquid through what he may consider a bout of market irrationality – albeit at considerable cost to his performance numbers.
Back in 2010, when the market had rallied strongly after the crash, Damaskos was a top-quartile manager in this sector on a three-year view. Now he is bottom quartile over the same three-year timeframe.
His Junior Oils fund has consequently dwindled from £66 million in size three years ago to just £23.1 million today.
Yet Damaskos remains confident that underlying trends are in his favour: geopolitics, from Russia to the Middle East and Africa, threatens supply; the US shale revolution is no longer considered an existential threat to the oil industry; and economic growth should underpin the oil price.
More about this:
Look up the funds
- RobecoSAM Smart Materials Fund B
- Aberdeen Global - World Resources Equity A2 USD
- First State Global Resources A GBP Acc
- Baring Global Resources A USD Inc
- Martin Currie GF Global Resources USD
- Junior Oils
Look up the fund managers
- Pieter Busscher
- Stephen Docherty
- Joshua Freedman
- Evy Hambro
- Catherine Raw
- Duncan Goodwin
- Ruairidh Stewart
- Angelos Damaskos
- Joanne Warner