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Investec gets to the long and short of resources

Investec’s enhanced natural resources fund aims for growth by investing long and short in a global portfolio of 30-50 resource equities and 10-15 commodity securities.

This Ucits III fund can invest across a range of resource equities, including metals, mining, energy, soft commodities, agriculture and related industries. Companies must have a market cap of at least $100m. When analysing and valuing resource equities, issues such as supply and demand for the underlying commodity will be used to forecast the direction of commodity prices over the short and long term.

The fund also invests in commodity securities so that investors can gain exposure to the asset class without taking physical delivery of a commodity or trading futures. Investec says commodity securities can act as a diversifier and reduce volatility as they expose investors to commodity price risk rather than equity market risk.

The fund has a long bias but under the Ucits III rules, it can go short using derivatives, which can provide protection where timing differences between moves in resource equities and the underlying commodity prices may act against the fund. The portfolio will be unconstrained, with stock selection not based on a benchmark index. However, the fund’s performance will be monitored against a composite index comprising 50 per cent MSCI World Materials and 50 per cent MSCI Energy.

Bradley George and George Cheveley will co-manage the fund but input will come from all members of Investec’s global commodities and resources team. George joined Investec in 2006 and has worked within the commodities and resources sector since 1996. He has managed Investec’s global commodities & resources fund since inception in 2007.
Cheveley joined Investec Asset Management in 2007 and has worked in the commodities industry since 1990.

The team debates the best investment ideas at regular investment meetings and weightings are allocated according to the team’s conviction in line with risk constraints, which determine the parameters for investment in each stock, sector and country.

Investec says demand for commodities is being driven by population growth and increasing consumer demand in regions such as China. As wealth grows, people will consume more goods such as cars and appliances, increasing demand for the energy needed to run them. Infrastructure in both developing and developed countries is also fuelling demand. However, business cycles may cause short-term declines within the overall trend for increasing demand for commodities, which may affect the performance of the fund.

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