FE Trustnet asks three professional investors which natural resources funds they would recommend to their clients.
Investec Enhanced Natural Resources
“Investec Enhanced Natural Resources, run by Bradley George and George Cheveley, provides primarily indirect exposure to commodities by investing in the equity of companies involved in the production and extraction of natural resources across the commodities spectrum,” says Ben Seager-Scott, senior research analyst at Bestinvest.
“It can also make use of derivatives and take some direct exposure through the use of ETCs.”
“The long-term supply/demand dynamic seems supportive for commodities, in that there is strong long-term demand from developing economies that need to do a great deal of infrastructure building.”
“On the supply side, while there is some elasticity, increasing supply generally has a higher cost associated with it, which also supports stronger prices. All of this leads into the so-called super-cycle, with many people expecting a multi-decade rise in broad commodity prices, coupled with significant volatility and periods of serious weakness.”
Data from FE Analytics shows that the fund has returned 27.65 per cent over the last three years. It has a TER of 1.68 per cent.
Threadneedle Enhanced Commodities
“Our preferred direct commodity exposure is via the Threadneedle Enhanced Commodities fund, managed by David Donora,” continued Seager-Scott. “The fund takes a more direct exposure to commodities by using swaps on futures contracts for commodities – note that UCITS rules mean the fund cannot hold futures directly and that the performance of futures prices can diverge quite significantly from the spot price.”
“With indirect exposure, investors may find the fund, which is invested in equities after all, will tend to have a higher correlation with broad equity markets in the short-term, though should follow the underlying commodity over the longer term.”
Performance of funds over 3-yrs
Source: FE Analytics
Hargreaves Lansdown’s Rob Morgan says that agriculture could be the growth story of the next 25 years.
“The theme is wired into the growing demographics story of emerging markets,” he said. “Investors need to be aware of the danger of over-exposing to emerging market regions if they already own developing market equity funds, but over the very long-term it is a structural trend that cannot be challenged.”
“As diets improve across the globe the demand for food will put a strain on the resources the world has. The agriculture theme taps into the idea of there not being enough cultivated land to feed the ever-growing population. Unlike other areas such as water where there are limited stocks for investment, there are plenty of companies available that are exposed to this theme to build a decent portfolio.”
“We especially like the Sarasin AgriSar fund. Manager Henry Boucher’s strap-line is ‘from field to fork’, which shows he is more than happy to invest in companies involved in improving production and developing fertilisers right up to food retailers. This allows him to invest in a diversified range of sectors and constructing a portfolio is not a problem.”
“We have used the CF Eclectica Agriculture fund in the past but while we think the manager is doing a very good job, we’ve found it to be a little focused and therefore a little too volatile for our tastes.”
The £170m Sarasin AgriSar fund has a TER of 1.76 per cent. It has returned 43.49 per cent over the last three years, slightly underperforming its MSCI World benchmark. By comparison the Eclectica fund has returned 37.73 per cent.
Neil Shillito, director at SG Wealth Management, says that the majority of investors needn’t look any further for commodities exposure than JPM Natural Resources.
“The fund is certainly the largest of its type and is the first one the majority of investors think of, but its performance over the long-term has been very solid. It has a wide remit and continues to be a favourite of ours in the space.”
“People’s appetite has been more adventurous in 2012 and we think it’s a good time for investors to move into more adventurous funds like these after a period of sitting on their hands.”
The fund is headed up by Neil Gregson and has £2bn of assets under management. The total expense ratio is 1.67 per cent.
“First State Global Resources is another of our favourites in the commodities sector,” added Shillito. “Manager Joanne Warner has a PhD in geology and was hacking around the outback digging up commodities before she was managing money. We like the story of big holes in the ground being overseen by her expertise and she is a manager we trust.”
Our data shows the fund has returned 55.13 per cent over the last three years and has a TER of 1.59 per cent.
Each fund has a minimum investment of £1,000.