Aim: Growth by investing globally in natural resource and commodity-related equities, derivatives and exchange-traded commodities
Minimum investment: Lump sum £1.000, monthly £100
Investment split: 32% base & bulk metals, 25% energy, 8% Agriculture and Livestock equities, 22% other, 13% precious metals equities, 13 agriculture & livestock commodities, 9% Precious Metals commodities
Isa link: Yes
Charges: Initial 4.5%, annual 1.5%. performance fee 20%
Commission: Initial 3%, renewal 0.5%
Tel: 020 7597 1800
Investec’s enhanced natural resources fund aims for growth by investing long and short in a global portfolio of resource equities and commodity securities.
Chadney Bulgin partner Bruce Bulgin observes that this is a new addition to funds that are taking advantage of Ucits III. He notes that hedging techniques are used, with short positions providing downside protection.
“The fund is exploiting the potential spending of Bric economies on infrastructure, which is expected to lead to an increasing demand for commodities alongside predictions for sharply growing populations.
“In the developed world there is also a need to update and replace the existing infrastructure, coupled with the creation of new energy sources,” he says.
A major attraction of the fund for Bulgin is that it may preserve capital in difficult market conditions. “This can reduce volatility in choppy markets. The investment brief is extremely wide and in addition to equities, it will also hold commodity futures.”
Bulgin points out that the fund is partly based on Investec’s global commodities and resources hedge fund, which has an excellent track record. “It has shown much steadier returns than many other funds invested in this sector,” he says.
Investec has a two-stage investment approach, comprising commodity analysis and equity research, followed by portfolio selection and construction.
“Investec has the experience and resources to carry out this process in a structured manner. It takes account of what Investec believes to be the main drivers of equity prices of resource companies. These are asset quality, capital management, valuation, earnings estimates and momentum,” says Bulgin. He adds that Investec believes its African roots gives a heightened expertise in commodities and frontier markets, while its London presence provides access for global investing.
On the potential drawbacks Bulgin says: “The very wide remit means that advisers may be unsure where their clients assets will be invested.
“The focus on natural resources and commodities is fine and many parts of these sectors have given positive returns in recent months. Some commentators feel that commodities are fully priced so to invest now could mean buying at the top of the market. Regardless of the hedging techniques, performance may be disappointing,” says Bulgin.
He says much of the performance depends on the growth of Bric countries, which can be considered high risk.
“Charges are average and in the current climate the performance fee does not seem unreasonable. The literature is comprehensive and straightforward. For advisers taking upfront commission, the amount payable is in line with other mutual funds.”
Bulgin expects competition to come from M&G’ global basics and JPM natural resources, but notes these are more traditional funds so that in many ways there are few competitors.
Summing up Bulgin says: “The Investec fund is a welcome addition. The shorting techniques should engender stability and it is likely to be popular with advisers putting together broadly based portfolios for diversified long-term growth.
Suitability to market: Good
Investment strategy: Good