John Innes, manager of the RWC UK Focus Fund, is also bullish on Shell’s prospects, pointing out that while its price has fallen, it has the luxury of a flexible balance sheet, downstream opportunities and margin flexibility, which many of the smaller players don’t have.
He is however, more bullish on mining than Marwood and Wright. Commodities broadly currently make up 16% of the fund, with Shell at 6%.
But, he also has positions in BP, BHP and even a small position in Glencore.
“We like the unfashionable areas of the market. We look for reasons why it is a good time to come back in and at the moment we think resources are looking interesting.”
Indeed, Innes is of the view that the globe is “in the foothills of an extended period of prosperity,” which over time will benefit commodities producers. “When optimism and enthusiasm are unfashionable, we are quite happy to be upbeat,” he added.
There are some, however, that remain unconvinced about commodities, even as a contrarian play.
Colin McLean, MD, SVM Asset Management points out that metals and mining companies are disproportionately represented in the London stock market which feeds into the associated indices and index funds, such as ETFs.
“Given how closely many conventional actively-managed funds follow indices, the impact on portfolios has been significant. It is more essential than ever for investors to develop a real world understanding of risk rather than simply relying on the indices,” he said, cautioning: “It is clear that not even the mining giants or their bankers are good forecasters of commodity prices and so investors should be dissuaded from such predictions. Instead they should consider how their portfolios are positioned in a deflationary world and then determine whether commodities balance risk or increase it.”
