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Which commodity managers have fared best in the slump?

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by Robert St George on Jun 17, 2014 at 12:11

Citywire Discovery reveals the commodity fund managers who have put in the strongest defence against the turbulent conditions.

The combination of fundamental underlying demand, low valuations, relatively high yields and a renewed management focus on shareholder returns is poised to send commodity stocks 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.

If not, though, 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 minus 1.4 – a damning erosion of value for so long a period.

So it is worth highlighting the select few who have emerged from that pit with something to show for it. Just five have posted a positive risk-adjusted performance through 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.

The analysis comes from Citywire Discovery, a new desktop system that allows fund buyers and fund groups to access track records of over 9,000 managers tracked by Citywire. It provides unique insights into peer group analysis, performance comparisons and competitor analysis. For more details contact support@citywireinsight.com

Joanne Warner, First State

Joanne Warner is the manager in this peer group with the best combination of long and medium-term performance on a risk-adjusted basis, through her £479 million Global Resources fund.

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-caps, on valuation grounds.

Duncan Goodwin, Baring

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 Citywire Discovery incorporates 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 Baring, 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 M&A activity, and welcomed last year’s series of executive defenestrations 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-cap 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 on 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 American shale revolution is no longer considered an existential threat to the oil industry; and economic growth should underpin the oil price.

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  • Pieter Busscher
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  • Joshua Freedman
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  • Duncan Goodwin
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  • Ruairidh Stewart
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  • Angelos Damaskos
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