Given that sentiment drives investor behaviour more than fundamentals, and that we are talking about funds losing billions of dollars in value over the past two years, retail investors will now be questioning their own commodities’ allocation.
And looking at the performance of some of the Ucits’ funds it is easy to see why…
The BlackRock Gold & General Fund is one of the biggest of its kind – with £2.6bn in assets under management – investing as it does in gold mining, commodity and precious-metal related shares with the vast majority (90%) of the fund in gold or silver stocks.
It has lost 12% and 19% in the past two discrete years.
The JP Morgan Natural Resources Fund is another behemoth of its kind with £1.6bn in AUM. Looking at the past two rolling 12-month numbers for 2010/11 and 2011/12, it has lost 30% and 13%.
An average of all 400+ natural resources funds on Morningstar’s UK-domiciled database shows a -9% return in the past year, -11% in the past two and not quite 1.5% for the past three year performance.
Looking at the similar performance numbers for Morningstar’s 230+ precious metals funds shows -25%, -15% and 0.5% over the same respective time periods.
Huge holes can be knocked through any argument based on pure performance numbers, certainly for the two named funds. But the trend is clear, commodity-based funds have not been the greatest to keep client money over the past two or even three years.
But here’s another ‘but’. We are all long-term investors and trying to build an argument to say the commodities supercycle is over is like trying to say equities are not the place to be. The asset allocation within the broad spectrum of commodities will change, as agriculture, energy, non-precious metals perhaps will come to the fore.
Taking Morningstar’s agriculture funds as an example, they have seen returns of 13% (1yr), flat for two years annualised and 8% in the past three years.
Feeding, clothing , powering, fuelling etc an ever-growing global population is going to be a long-term investment trend so the fact that a few hedge funds have got it disastrously wrong does not spell the end of commodities as a source of investment growth.