Dean (pictured) points to the fact that commodities were in a bull market for many years prior to the dip, indicating that prices could fall further still. "People are saying that commodities have been in a bear market for two years, but they forget that they were in a bull market for the seven prior to that," she explained.
"There is no sign that fixed-asset spending in China is picking up strongly – maybe you need China for commodities to do better, but there’s still a lot of oversupply out there, and with growth still disappointing and production costs high, there are a lot of challenges."
"Lonmin recently put out some data arguing that costs aren’t as bad as they were. Indeed, we could be getting to the point where commodities don’t underperform quite as much as they did."
"However, I don’t see any strong reason for there to be a sudden change. We could see a bear squeeze, but hopefully the exposure I have to financials and industrials will see me benefit from that anyway.”
Performance of indices over 10yrs
Source: FE Analytics
FE Analytics data shows that the S&P GSCI Commodity Spot index – which tracks commodities prices – and the HSBC Global Mining index are both well ahead of the MSCI AC World index over a 10-year period, in spite of the recent underperformance.
Dean’s argument against commodities is similar to Boost ETP’s Viktor Nossek’s wariness of gold.
Nossek pointed out in a recent interview with FE Trustnet that the metal’s recent fall in price has to be put in the context of a decade-long rally.
Dean has nothing invested in oil and gas, and just 2 per cent in basic materials. Her biggest overweights are in industrials, financials and consumer stocks.
A number of industry professionals have recently pointed to the commodities sector as one of the very few value plays available to investors, given the recent surge in equity markets as a whole.
In FE Trustnet articles earlier this month, Psigma’s Tom Becket and Platinum Financial Services’ Harpreet Sajjan both highlighted the funds they are tipping to play the revival.
However, Dean remains unconvinced – although she admits that if prices fall further still, she may revise her underweight position.
She commented: "What is the decline in commodities saying? That financials spectators aren’t worried about inflation anymore? That China is slowing? Or that there is a massive oversupply going on?"
"I’m not entirely sure, but I think you’ve got to look at the fact that inflation in the West looks destined to stay low, and demand in the East likewise. In this environment, you don’t need them [commodities]."
"It’s certainly something to keep an eye on. We may look to bring down our underweight to commodities in the future, but not yet."
Dean is one of the standout names in the UK All Companies sector in recent years. Her Cazenove UK Opps fund has benefited from her reading of the business cycle, which has seen her make very astute sector moves in the short-term.
The fund is one of only a handful of funds that is top decile in its sector over one, three, five and 10 years. It is also top decile over one, three and six months.
Needless to say, it has beaten its FTSE All Share index benchmark over these periods as well.
Performance of fund vs sector over 5yrs
Source: FE Analytics
Cazenove UK Opps requires a minimum investment of £1,000 and has an ongoing charges figure (OCF) of 1.58 per cent.
Dean will continue running the fund when Schroders’ acquisition of Cazenove is completed. She will also take over the Schroder UK Growth trust, currently headed up by Richard Buxton.
An in-depth interview with Julie Dean will be one of a number of articles featuring Cazenove’s stable of FE Alpha Managers next week.
A Cazenove special, consisting of seven articles in total, is scheduled to appear on the site on Wednesday 22nd May. If you have any questions about a Cazenove fund or manager, please do not hesitate to leave a comment below, or email us at editorial@trustnet.com.