Investors are always told to buy what is cheap and sell what is expensive, although this is hard to do when a sector or asset is as unpopular as mining.
Rob Morgan, investment analyst at Charles Stanley Direct, told FE Trustnet this morning that commodities are the true contrarian play at the moment.
With this in mind, FE Trustnet looks at five portfolios that could capitalise from a pickup in sentiment towards the sector.
BlackRock Gold & General
One of the obvious benefactors of a commodities revival would be FE Alpha Manager Evy Hambro’s £2.1bn BlackRock Gold & General fund.
According to FE Analytics, it has a good long-term track record, having returned 200.03 per cent over 10 years. However, it has struggled recently as the commodities super cycle has wound down.
The fund has lost more than 30 per cent over the past three years and 28.52 per cent over the past 12 months.
Hambro took over the running of the fund in April 2009, since when it has lost 8.5 per cent, while the HSBC Global Gold index is down by 27.34 per cent.
Performance of fund vs index since Apr 2009
Source: FE Analytics
As the fund’s name suggests, Hambro predominantly concentrates on gold mining companies. His three largest holdings are Newcrest Mining, Randgold Resources and Goldcorp.
BlackRock Gold & General’s largest regional weighting is to Canada, with 37.9 per cent of AUM allocated to the country.
It has a heavy bias to mid caps – at 51.2 per cent of the portfolio – which should help it to outperform if sentiment towards the sector was to change.
The fund has an ongoing charges figure (OCF) of 1.93 per cent and requires a minimum investment of £500.
BlackRock World Mining IT
Although Hambro is probably most well-known for managing BlackRock Gold & General, he also runs the closed-ended BlackRock World Mining Investment Trust.
The trust holds many of the same companies as the open-ended fund, but also invests across the broader mining sector.
Hambro has been running the BlackRock World Mining IT since May 2009, over which time it has returned 42.42 per cent, while its benchmark – the HSBC Global Mining index – has returned 24.05 per cent.
His trust has also considerably beaten his fund over this time.
Performance of trust vs index since May 2009
Source: FE Analytics
As a closed-ended fund, BlackRock World Mining IT has the ability to borrow money to enhance performance. It is currently geared at 12 per cent.
Income-hungry investors may be surprised to see that the trust is yielding 4.2 per cent, which Winterflood’s Iain Scouller believes is one of the reasons why there has been increased interest in it.
"The discount has narrowed over the last year or two; I think that reflects the high yield they are now paying," Scouller said.
It is trading on a fairly wide 9.8 per cent discount to its NAV, although this has narrowed recently.
Rob Morgan, investment analyst at Charles Stanley Direct, says the yield on the trust is high and that he would certainly be interested in holding it.
"It’s a pretty reasonable yield. I would be thinking of adding to it at that number. It should grow over the longer term, albeit with volatility," the analyst said.
Morgan also points to the fact that as a closed-ended fund, it can hold back the amount it pays out to its shareholders each year, providing a smoother dividend yield over time.
BlackRock Gold Mining IT has a total expense ratio of 1.42 per cent.
JPM Natural Resources
JPM Natural Resources is managed by Neil Gregson, who took over from the long-serving Ian Henderson in January 2012.
It contains 247 holdings, with 67 per cent of total AUM allocated to basic materials.
The manager has a positive outlook as he believes the demand for commodities will pick up as the global economy improves.
The fund has a bias towards mid and small caps as he says they are "often better positioned to materially grow production and replace depleting reserves".
The £1.2bn JPM Natural Resources fund’s performance has mirrored that of BlackRock Gold & General.
Over 10 years the fund has returned 321.17 per cent while its benchmark – the HSBC Gold Mining & Energy index – has returned 267.48 per cent. However, like Hambro’s fund it has posted hefty losses in recent times.
JPM Natural Resources has an OCF of 1.68 per cent and requires a minimum investment of £1,000.
M&G Global Basics
FE Alpha Manager Graham French’s five crown-rated M&G Global Basics fund invests in companies that are the "building blocks of an economy", meaning it will also benefit from an uptick in popularity towards commodities.
The £5.2bn fund is the second-best performing portfolio in the IMA Global sector over 10 years, with returns of 304.32 per cent.
However, it is bottom quartile over one, three and five years.
Hargreaves Lansdown’s Richard Troue says this period of underperformance is due to French’s high exposure to basic materials.
The manager has subsequently reduced his weighting towards the sector and re-positioned the portfolio towards consumer goods.
Our data shows the fund had 38.8 per cent in basic materials in January last year. That figure now stands at 26.4 per cent, but with a quarter of the fund still exposed to commodities it would benefit from a change in attitude to the unloved sector.
M&G Global Basics has an OCF of 1.66 per cent and requires a minimum investment of £500.
M&G Recovery
This fund is not an obvious beneficiary should a reversal in the commodities super cycle occur.
However, Troue says that as FE Alpha Manager Tom Dobell holds a number of mining companies, a spike in commodities shares could help turn its fortunes around.
"Stock selection has been the major reason for M&G Recovery’s underperformance. Dobell holds the likes of Kenmare Resources, First Quantum Minerals and African Minerals in his fund," Troue said.
"He himself has been disappointed with the fund’s performance, but he is sticking with those mining companies."
"He doesn’t hold FTSE 100 miners, so if commodities were to bounce, that mid and small cap bias would give the fund an extra bounce."
The fund’s largest mining holding is First Quantum Minerals, making up 2.2 per cent of total AUM.
Dobell began running the fund in March 2000, since which time it has returned 142.53 per cent. The IMA UK All Companies sector has returned 57.67 per cent over the same period.
M&G Recovery is a top-quartile performer over 10 years and is a second-quartile performer over five. However, it has slipped into the bottom quartile over one and three years.
The fund requires a minimum investment of £500 and has an OCF of 1.65 per cent.