Speaking at a press briefing yesterday, Evelyne Pflugi and Roberto Cominotto, managers of the Julius Baer Natural Resources Fund highlighted the long term benefits of investing in the sector, which has been out of favour for the past couple of years.
Cominotto commented that while the sector was still suffering, recovery would be driven by the strengthening economies of China and other emerging economies which would not only drive demand for infrastructure and energy, but also for dietary commodities such as grains, and consequently water, fertiliser and other agricultural products.
He also said the impact of the US economic recovery on commodity and natural resources prices should not be under estimated.
Stand out sectors
The managers have a 15% allocation to water with a focus on water infrastructure, a lack of which is creating problems in other sectors particularly agriculture and energy production processes. Pflugi believes that those firms operating in the sector therefore have the potential to perform really well as their products and services are in demand.
Pflugi is also keen to invest in steel assets, predicting a surge in demand as a result of US economic recovery. She said the residential housing recovery which is evident at the moment usually precedes commercial property, a key driver of steel demand, by around six months. By investing in the assets at their current low prices, the fund will be well placed to benefit once the anticipated uptick materialises.
The pair has been at the helm of the fund since the start of April. The have a global mandate and a diversified sector allocation; the fund targets 40% exposure to energy, 30% to metals and mining, and 15% each to agriculture and water, but they also have the flexibility to move sectors and allocations as and when they see fit.
The fund’s performance over the past year is shown in the graph below.
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A few weeks ago we took an alternative look at the outlook for the commodities sector over the coming year.
