CommoditiesJan 2 2018

Insight: Can commodity funds rebound?

  • Gain an understanding of what energy and resources managers are investing in
  • Learn about how funds and trusts have performed
  • Understand the challenges facing the sector
  • Gain an understanding of what energy and resources managers are investing in
  • Learn about how funds and trusts have performed
  • Understand the challenges facing the sector
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CPD
Approx.30min
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Approx.30min
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CPD
Approx.30min
Insight: Can commodity funds rebound?

The situation has improved slightly over the past 12 months, on the back of a rise in the price of oil and metals such as copper, but returns still come up short when compared with other sectors. Thus investors may remain unconvinced of the funds’ merits.

Oil slick

Oil prices have played a fundamental role in the fortunes of mainstream energy and resources funds in the past few years. And those avoiding oil and gas companies have fared better.

Data from Bloomberg highlights the depth of the difficulties faced by the oil industry. In early February 2013, the price of the commodity soared to nearly $120 a barrel, and although two months later the price had reversed to below $100 a barrel, more severe declines were just around the corner. 

By the start of 2015 the price had plummeted to below $50, and a year later to just $29 a barrel. A rally has since ensued, most notably in the past six months, with the price climbing back above $60. So managers omitting oil and gas companies have achieved the most significant success over longer-time periods, with the two best-performing funds over five years both adopting this strategy.

Topping the pile is BlackRock’s GF New Energy fund, which has mustered average growth of 13.4 per cent per annum over five years and 11.6 per cent over three. Nearly two-thirds of the strategy is invested in a mixture of building and construction (32 per cent) and alternative and renewable energy (30 per cent) firms. The US is the vehicle’s most favoured region, with more than a third of the portfolio invested there.

The next best performer is Pictet’s Clean Energy unit trust, where growth has exceeded 18 per cent in each of the past two years. Average annual growth over five years of 13.3 per cent is just shy of the BlackRock fund, with which it shares a number of similarities.

Oil and gas firms are again omitted, with ‘energy efficiency’ being the preferred sector accounting for almost half (47.6 per cent) of the portfolio. Another similarity is geography: the US is again the favoured region, even more so on this occasion with 56 per cent held in US stocks. 

Given the trust is denoted in sterling, the pound’s 2016 weakness against the dollar is also likely to have played a significant role in the recent good performance.

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