Long-term case for JPM Natural Resources still intact
While commodities have been out of favour over the last 18 months, Sheridan Admans, investment research manager at The Share Centre, believes now could be a good time to increase exposure to the asset class.
For most of 2012, energy and hard commodities, gold aside, have been weaker as many European economies slipped back into recession and even Germany, the power house of Europe, has seen a slowdown in growth.
This has also had an impact on China as weaker demand from Europe and the credit crisis continue to constrain money supply.
However, over the long-term the emerging market growth story should continue to offer potential for investors. As these economies develop infrastructure to compete in the global market, this is likely to have an impact on the demand for commodities in the years to come.
That said, the volatility the sector exposes investors to is not going to go away as the credit crisis rumbles on.
In the short-term this sector could receive a boost, with expectations that the US Federal Reserve, European Central Bank and the Chinese are all preparing to provide some monetary stimulation, which we know helped boost this asset class in 2009 and 2010.
As returns have fallen and pessimism is fairly high, an investor looking for exposure to this sector may consider this moment to be a good entry point.
The JPM Natural Resources
fund fell 29.74 per cent in 2011 and is down 11.14 per cent so far this year as the economic markets remain unstable, driving commodity investment lower.
Performance of fund vs index since 1 Jan 2011
Source: FE Analytics
Commodity valuations are looking better than they have for some time, so taking the long-term view of more than five years, investors should see some rewards from holding a fund that has exposure to this sector.
This fund invests in a diversified portfolio of companies that are exposed to global resources and energy. It invests across three spectrums and is roughly divided between gold, base metals and energy. It holds only equities and does not invest in direct commodities or exchange traded funds.
Investments tend to have a bias towards small and mid cap companies. The fund aims to help reduce market volatility by holding positions in 250 to 300 companies throughout their life cycle, including discovery, pre-production and reserve definition.
Investors should note the fund will always have a tougher time in a cyclical downturn because of its focus on smaller and mid cap stocks.
Performance of fund vs index over 10-yrs
Source: FE Analytics
Neil Gregson’s £1.6bn JPM Natural Resources portfolio is one of the best-performing funds of the last decade, delivering more than 426 per cent, compared with 295.62 per cent from its HSBC Gold, Mining & Energy index benchmark.
Much of this outperformance came under Ian Henderson, who announced his retirement at the beginning of the year.
Gregson has been on the team since September 2010, but became lead manager on 1 January this year.
The fund has a minimum investment of £1,000 and a total expense ratio (TER) of 1.68 per cent.