Gregson (pictured), manager of the £1.6bn JPM Natural Resources fund, says that the reduction of mining activity and a pickup in China’s industrialisation means that the price of mining equities could be set to soar.
He believes that the risks surrounding the sector have been reduced, as management teams have learnt from their past mistakes and are now operating with tighter balance sheets. "After a long period of disappointment, we believe expectations have overshot to the downside and that we have moved through trough earnings, particularly for the miners," he said.
"After two bruising years, management teams within the sector are showing a greater focus on capital discipline, which will feed through into positive earnings and cash-flow surprises in the first half."
He added: "Moreover, cost pressures across the industry are easing as project cancellations from many of the major diversified companies free up labour and reduce equipment lead times."
In terms of the general commodity market, Gregson says that continuing growth in the global economy and China’s need for more natural resources will give the sector a boost.
He commented: "After two difficult years we believe the sector is poised for a recovery."
"The rebound in global growth has already brought an end to the destocking cycle of many commodities and we expect this to continue throughout the year as industrial production accelerates."
"China remains the key player in commodity markets and while GDP stabilised some time ago, only recently has the pick-up in activity begun to flow through to final commodity demand."
"This dynamic should support commodity pricing through the first half of 2013."
Gregson has been lead manager of the JPM Natural Resources portfolio since January 2012, taking over from industry stalwart Ian Henderson. However, he has been on the team since early 2010.
The portfolio sits in the IMA Specialist sector, so comparing JPM Natural Resources' performance against the sector average would be misleading.
However, so far under Gregson's leadership the fund has underperformed against its benchmark – the HSBC Gold Mining and Energy index. According to FE Analytics, it has lost 10.27 per cent since Jaunary last year, while the index is down 2.67 per cent over the period.
Performance of fund vs index since Jan 2012
Source: FE Analytics
JPM Natural Resources has underperformed against its benchmark over three and five years, losing money over both periods.
However, it has returned 388.69 per cent over 10 years, beating the HSBC Gold Mining and Energy index by more than 90 percentage points in the process.
Performance of fund vs index over 10-yrs
| Fund/index | 3yr returns (%) |
5yr returns (%) | 10yr returns (%) |
|---|---|---|---|
| JPM Natural Resources | -15.05 | -13.66 | 388.69 |
| HSBC Gold Mining & Energy | 0.80 | 15.51 | 298.21 |
Source: FE Analytics
Gregson is also a big fan of gold equities in the current climate.
With many nations looking to to devalue their currency in order to lower the cost of their debt, Gregson believes that demand for the precious metal will increase.
"The backdrop for investing in gold remains very favourable given the accommodative stances of developed world central banks," Gregson continued.
"The unprecedented monetary easing being carried out by central banks is likely to increase inflation expectations and impose continuous negative real interest rates as nominal rates will likely remain close to 0 per cent for the foreseeable future."
"Moreover, in a world in which no country wants a strong currency, gold’s unique supply and demand fundamentals provide a source of intrinsic value."
He added: "Gold will continue to be thought of as a currency without a printing a press."
JPM Natural Resources invests primarily in the shares of commodity-focused companies, but can invest directly in actual commodities. It has a diversified portfolio of more than 250 holdings.
It counts mining giants Rio Tinto, Xstrata and BHP Billiton in its top-10 holdings. Its largest regional weighting, at 36.8 per cent of AUM, is in Canada.
JPM Natural Resources requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.68 per cent.