Introduction
Macroeconomic events have always had an effect on the supply and demand of commodities, and with Chinese growth slowing, some areas have suffered. Currently it is the oil price that is taking the biggest hit, with excess supply of oil meaning Brent Crude oil moved below $90 per barrel in early October.
However, this is not necessarily all bad news for investors.
Laith Khalaf, senior analyst at Hargreaves Lansdown, notes: “The oil price is at its lowest level since June 2012. A barrel of Brent Crude now costs $89, down from its peak of $115 in June 2014. This 20 per cent fall is an effective tax cut for consumers and manufacturing companies across the globe.”
In addition, some suggest the lower oil price and the fall in commodities in general offer interesting buying opportunities, although figures suggest many investors are looking at the sector from a passive angle.
Research from ETF Securities shows that commodities are trading at their lowest prices relative to production costs since the financial crisis, but this seems to be attracting some longer-term value investors.
The figures show that gold exchange-traded products (ETPs) accounted for nearly 60 per cent of the decline in global commodity ETP assets under management. Conversely, silver recorded $452m (£281.6m) of net new investor flows in spite of the price decline.
Oil ETPs, meanwhile, recorded strong inflows in August, but the continued price decline has seen that falter in September, while industrial metal ETPs have had a more mixed quarter resulting in net inflows of $29m.
This demonstrates not only the wide variety of investments that fall under the natural resources banner, but also the willingness of some investors to move back towards out-of-favour commodities if they believe there is good value.
Natural resources funds as a whole have had a disappointing year as the wider commodity backdrop in the past few months has struggled.
Of the seven IMA-listed funds with ‘natural resources’ in the title, only two have produced positive returns in the 12 months to October 9 2014, according to FE Analytics, with the T. Rowe Price Global Natural Resources Equity fund topping the list with a return of 5.24 per cent.
But for the three months to October 9 2014 all seven funds moved into negative territory, with the BlackRock Natural Resources Growth and Income delivering the best figure of the seven, with a loss of 5.41 per cent.
Natural resources is a tricky area to navigate, so investors need to be aware not only of which sectors they are investing in but also of the macro factors that might be affecting these asset classes. For those with a long-term investment horizon, they will view these fluctuations as mere blips, but for investors with a shorter-term outlook, this volatility maybe too much to handle.
THE PICKS
Investec Global Natural Resources
Managed by Bradley George and George Cheveley this $389.3m (£244.2m) Luxembourg-domiciled fund has struggled since launch, delivering mostly negative returns. However, for the five years to October 9 2014 it has produced the best return of the seven natural resources funds, albeit with a loss of 0.59 per cent. Its returns, while negative, across one and three years are also well ahead of some of its peers. It aims to benefit from a long-term increase in the prices of commodities and natural resources, with its largest sector weighting held in diversified metals and mining at 23 per cent of the portfolio.
JPM Natural Resources
This £934.7m fund is managed by Neil Gregson and his team and is one of the longest running natural resources funds, having been launched in June 1965. Its longer-term performance is strong with a 10-year return to October 9 2014 of 75.02 per cent, but more recent performance has been patchy, including a loss of 34.06 per cent across three years and a 6.58 per cent loss for the past 12 months to October 9 .
EDITOR’S PICK
T. Rowe Price Global Natural Resources Equity
Managed by Shawn Driscoll since last year, this $311.5m (£194m) Sicav has delivered strong returns in a difficult environment. Its one-year return of 5.24 per cent outstrips the other IMA-listed natural resources funds, while it was also the only fund to deliver a positive result for the six months to October 9. Its largest weighting is to the exploration and production sector at 33.1 per cent of the fund.
