Connolly (pictured), head of communications at AWD Chase de Vere, says it is impossible to know exactly when commodities funds will pick up again, but that on a long-term basis valuations are too good to miss out on. He has opted for Neil Gregson’s £1.55bn JPM Natural Resources portfolio, even though it has underperformed on both an absolute and relative basis in recent years.
"For my ISA and my pension, one of the funds I have started buying recently – about five or six months ago – is JPM Natural Resources," he said.
"I top up my investments on a regular basis and as a whole I think commodities, which have underperformed of late, will turn it around."
"I am in no desperate rush for this change either and I don’t know exactly when it is going to happen; it could be in one day, one week, one month or six months."
"The main reason I wanted to buy JPM Natural Resources is because it has been underperforming and that to me is a signal to start buying."
"However, by dripping money in over a long period of time I am negating the risk of market timing."
"Therefore even if there is a further market correction, I can still maintain a long-term approach to my investment."
Connolly’s comments echo those of BlackRock’s Malcolm Smith, who told FE Trustnet last month that the long-term case for commodities is still very much intact.
The £1.5bn JPM Natural Resources fund was originally launched back in 1965, and has returned more than 5,000 per cent since then. Over 10 years it is up 396.95 per cent.
JPM Natural Resources is a constituent member of IMA Specialist, so comparing results with its sector average would be unfair; however, it has beaten its benchmark over this period.
Performance of fund vs index over 10yrs
Source: FE Analytics
The fund has been significantly more volatile than its HSBC Gold Mining & Energy index, however.
As Connolly highlights, the fund has struggled in more recent times, falling short of its benchmark over one, three and five years.
Over one year it has lost over 10 percentage points more than the index.
Performance of funds vs index over 1yr
Source: FE Analytics
Gregson took over the three crown-rated fund from longstanding manager Ian Henderson in January of last year, but has been on the team since 2010. He also manages the JPM Global Mining fund.
When asked why he chose JPM Natural Resources over its multi-billion pound rival BlackRock Gold & General, Connolly said: "Because of the the BlackRock fund's greater exposure to gold mining shares."
"I wanted more diversity from a natural resources fund – JPM Natural Resources has around 25 per cent in gold miners while the BlackRock fund has 80 per cent plus."
He added: "I want exposure to other areas because, although there might be an underlying correlation in the holdings, I would prefer to have more diverse exposure to commodities, through other precious metals and energy stocks."
JPM Natural Resources has 28.2 per cent of its assets in gold and precious-metal mining shares, but its largest sector weighting is in base metals and diversified miners, which make up 35.2 per cent of AUM.
The fund has a diverse portfolio of 253 holdings. The largest is Rio Tinto, making up 4.9 per cent of AUM. Gregson also counts multi-national mining giants Xstrata and BHP Billiton in the fund's top-10.
Although Connolly is optimistic about JPM Natural Resources, he is very aware of the inherent risks of investing in commodities and is using other funds to hedge against this.
"Today the valuations are very cheap and at some point that will change," he said.
"I don’t want to predict exactly when commodities will rally; however, by investing with a longer-term approach and feeding smaller amounts of money in regularly, I think I am well-positioned to capitalise on that."
"I have about four or five funds where I invest in regular premiums for my ISA, so I am not just putting all my eggs in one basket with JPM Natural Resources."
The fund requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.68 per cent.