While it is impossible to know when the current sentiment on commodity sector fundamentals will reverse, the long-term structural case remains compelling.

Investors should look beyond current short-term concerns, such as the European debt crisis, and focus on the medium-term outlook for investments – especially as we are seeing impressive individual stock performances in the oil and gas sector.

The next 10 years will see more of the same – emerging markets will lead the growth in demand for commodities and may cause ongoing supply issues – but we believe the natural resources sector continues to offer one of the most exciting investment cases available.


Opportunities in new frontiers

While rich oil basins have been known to exist in new frontiers for some time, it is only now that they are being unlocked and it is not the short-term oil price rise, but rather a realisation that the medium-term assumptions for the oil price have changed, that has energised the oil and gas sector.

In 2012 alone, we have reaped the substantial benefits of investments in these new frontiers, which have outperformed both a return from the majors and the rise in the oil price. African Petroleum is up 252 per cent and Ophir Energy is up 95 per cent, while the oil price is up just 9 per cent.


Supply side issues offer rationale for investment

At JPM, we believe investors are gauging the health of the copper sector, for example, on demand drivers alone and as such concerns about global growth, and in particular the government-induced Chinese slowdown, have resulted in a volatile performance for this economically sensitive metal.

However, a recent gathering of miners at the CESCO conference in Santiago reinforced our view that major producers face supply-side challenges that will impact 2012 supply. These supply-side issues can’t be ignored and support the compelling case for investment in the sector.

Taking copper as an example, a combination of declining ore grades, a shortage of skilled labour, environmental approval delays, longer lead times on obtaining equipment as well as a number of technical operating challenges can all create supply-side issues yet demand remains consistent.


Valuations offer an attractive entry point

The mining sector has been de-rated so severely we believe it is hard to argue a better entry point into the sector. Valuations are at rarely seen lows as the sector suffers from a divergence between fundamentals and fear. For the investors who recognise the long-term structural case for an investment in commodities, this offers a market entry point.

Neil Gregson took over from Ian Henderson as lead manager of the £1.7bn JPM Natural Resources portfolio in January this year. The views expressed here are his own.