The FE Alpha Manager acknowledges that commodity producers could be set for turbulence in the short-term; however, he says that patient investors would be much better off backing miners than physical metals such as gold and copper. "Despite positive fundamentals, in 2011 the sector was the worst-performing cyclical sector in Europe," he explained.
"In the current macro uncertainty, corporate cash flows and future earnings have become difficult to predict, given the wide array of possible outcomes."
"As a result, market participants have begun to pay more attention to commodity spot prices and investor sentiment towards producer shares has retreated when these short-term variables have shifted downward."
"Furthermore, because the sector is perceived as higher risk, mining companies have suffered as investor risk appetite has reduced."
"This widespread, short-term myopia presents a significant buying opportunity for investors focused on long-term value. The leverage companies deliver to commodity prices means that even if spot prices remain flat, shares can nonetheless appreciate on earnings growth, dividend prospects or other upside potential."
His views echo those of L&G’s Tim Gardner, who believes the dislocation between bullion and gold miners makes the latter particularly attractive.
Although Hambro’s BlackRock World Mining Trust managed to outperform its HSBC Global Mining benchmark by 5.44 per cent in 2011, it still suffered losses of 21.55 per cent.
Performance of trust v sector in 2011
Source: FE Analytics
By contrast, commodity prices remained relatively robust in 2011, including copper, which posted its highest ever average annual price.
However, in spite of a tough time for mining stocks, Hambro believes fundamentals remain strong. He points to improving conditions in China as the biggest structural driver for the sector at present.
"Potential positives for commodity and equity prices that may emanate from China, the world's most voracious consumer of bulk commodities, are not widely appreciated," he said.
"The country is now a net importer of iron ore and also coal, as its phenomenal rates of growth mean it now consumes more metal and energy than it produces."
"Fears of a hard landing for the Chinese economy now look somewhat less likely and inflation that was caused by overheating is retreating from its highs. Crucially, China and the US remain in expansionary territory even though global PMIs are deteriorating."
"M&A trends also remain supportive as companies look to deploy some of the cash on their balance sheets, and miners will also benefit from strong operating leverage that has returned to the sector," he added.
A recent FE Trustnet study highlighted the stellar performance of Hambro since taking over as lead manager of the £1.16bn BlackRock World Mining trust from Graham Birch three years ago.