Graham French: last summer was the worst of my career

‘We are not bearish on commodities as there will still be demand. Everyone was concerned that China was only growing at 7% compared to historic 10% growth but if you have twice the size of economy growing at 8% that is far more powerful than half the size of economy growing at 10% in 2000.'

‘The problem with the industry was that it overcapitalized itself and up to $200 billion had to be written off due to poor management.’

French stresses that his preferred resources stocks are all cash generative and primarily in relatively scarce or in demand commodities.

‘Iluka Resources has zero debt and huge cash flow. It mines for mineral sands where the demand picture is fantastic. We also expect Oz minerals to do quite well this year and don’t want to be in commodity stocks with poor management or where the commodity is abundant.’

French has spent the last few months transitioning his €6 billion fund away from a resources focused vehicle to a more a consumer demand focused one as the dynamics of the global economy shift.

Until recently, French held over a third of his fund in resource based stocks and profited from the ‘resources super cycle’ as the emerging markets continued their rapid growth trajectory, but has had a tougher run over the last two years as demand for resources fell away. 

Consumer shift

At the end of January 69% of the fund was in consumer goods, food and agriculture related stocks with French increasing exposure to bioscience stocks such as German listed Symrise and US giant Monsanto, as well as consumer staples groups such as PZ Cussons and Unilever.

‘Food security and brand awareness are so important. In Indonesia and Thailand, private label accounts for around 1% of [food] sales but it is about 20% in the UK.'

The fund is also positioned to benefit from a rise in potash prices, with large stakes in fertilizer and seed groups Uralkali, Potash Corp and seeds giant Monsanto. 

‘If there is a recovery in potash prices this fund will do incredibly well and the [globally] growing middle classes will pay more for security of supply. The horsemeat scandal in Europe and worries over baby milk prove this.’