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French's successor at M&G: why I back commodities
by Max Skjönsberg on Nov 19, 2013 at 14:34
Randeep Somel, who yesterday replaced Graham French as sole lead manager of the £4.2 billion M&G Global Basics fund, is backing commodities to bounce back despite a falling copper price and fears of slowing infrastructure spending in China.
Amid speculation that Somel would change the underperforming fund's focus and look to other sectors, he said he would keep its large allocation to basic materials, currently its largest overweight position.
‘Commodities came off sharply at the end of 2011, but they are coming back now strongly,’ said Somel, who was previously French's deputy. ‘The demand for commodities is at an all-time high now. Iron ore is currently at a three-year high and these commodity companies are at very low valuations. The demand is growing, but the supply base is not growing. What you will get is a price squeeze, which is what you want as an investor.’
When announcing his departure yesterday, French said financials and technology are the future for emerging markets and that his expertise lay in other areas. French said: ‘The next wave has to be led by Randeep [Somel] and the team around Randeep who are younger and fresher and who understand these new innovations that are going to occur in the world.'
However, Somel has chosen to stress continuity, despite the fact that the M&G Global Basics fund has posted a return of just 4.7% over the past three years, well below the 33.2% from its composite benchmark. As recently as March of this year the fund stood at £5.5 billion in size, but by the end of October 2013 it had fallen to £4.2 billion.
‘The investment process on this fund has not changed,’ he said. ‘But as the economies develop this fund develops with them.’
Somel added the fund has bought its first software company in the shape Microsoft. ‘It is a fantastic business, not just in developed markets but also developing countries,’ he said.
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