AyG
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Post by AyG on Jun 11, 2015 8:53:21 GMT 7
If we go back a few years, there was a good case for investing in natural resource and mining companies. Demand for commodities was expected to rise with the development of developing and emerging countries, pushing the price up. There was plenty of scope for improved management of many companies to increase profitability. I therefore invested in three ways: BlackRock World Mining (IT), BlackRock Gold & General (Fund), JP Morgan Natural Resources (Fund). Things haven't turned out quite as expected, and have lost over the past 3 years 40.7%, 46.1% and 36.5% of their value respectively.
I am usually very reluctant to sell investments - I invest for the long term. However, I'm now wondering whether I should do so.
The "sell" argument for me is that it's unlikely that these investments will gain in value significantly in the next few years: the sector is so deeply out of favour. I could get better returns by investing elsewhere.
The "hold" argument is that the original reasons for investing remain valid, and over the long term they will out perform.
The "buy" argument is that they are a good investment based upon current yield - somewhat north of 6% - which seems sustainable, plus the possibility of capital growth. (This is what I would have to do to bring my asset allocation back to the target 10% for the sector this year.)
I'm fairly confident that these investments have hit rock bottom. What would you do now if you were in my place?
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Post by Fletchsmile on Jun 11, 2015 13:17:29 GMT 7
I still have some small holdings in BlackRock Gold & General, and JPM Natural Resources Fund, but have reduced over the last few years. These were great specialist funds to have exposure to throughout the commodities supercycle. Not only in the right sector, but also with fund managers that seemed to add alpha above normal market returns. The commodities super cycle is now over though. JPM NR also changed fund manager in 2012, and since then the new manager has under performed the market, i.e fund no longer adding alpha. That's two key fundamental negatives. Hargreaves Lansdown also removed it from their Wealth 150 list, as posted on this thread, a couple of weeks back, another negative in itself. bigmango.boards.net/thread/1321/commodities-resourcesI'm not sure what you're referring to as a 6% yield. These funds don't pay out that much in divs. So when looking at income generating assets, and believing if the market corrects then decent divs will help support certain stocks a bit more defensively, they don't meet my dividend/ income criteria for buying yield. On having hit rock bottom or not, I'm not confident they have: - Gold may yet fall further, always difficult to predict direction on that, so the Blackrock G&G fund still has potential further downside. - On resources, globally there are still risks of economic slowdown - a hard landing in China may be unlikely, but still exists as a risk, also China's growth is slowing, and growth globally is anemic. - A global correction in asset prices, bonds, equities etc is not out of the question. That wouldn't exactly leave resource stocks unscathed - In addition for oil stocks I'm not convinced that prices have been fully reflected in stock prices, and/ or that people have fully seen the repercussions. Only last August - 10 months ago - Brent was above $100 a barrel, even October it was still above $80. So we haven't seen a full year of reporting yet for these companies under lower oil prices. Earnings may still have worse to come, even if the oil price continues to picks up - I think it will edge higher, but a correction is a possibility, and I wouldn't like to bet either way on oil price. It also takes time for inventory prices to adjust. So all in all there could be more surprises to the downside. - Then there's the financing side on some if rates pick up. We've seen some fallout on junk bonds from shale oil companies, that are leveraged, but there could be more to come. Suriving 8 - 10 months of difficult cashflows may just be a start. We haven't seen a full year cashflow statement for these companies yet with il at low levels, again given August was > $100/ barrel. Another thing I don't like now about the funds is they are too narrow in focus. this gives no leeway or place to hide if things go South. When the commodity cycle was on, a specialist fund makes sense to capitalise on it, as the situation itself was special. Now I would prefer a more diversified fund that could invest in commodity stocks if they thought timing is right, or reduce if they thought it wrong. It's by no means clear this is the right time, and it could get worse. If you looked at Neil Woodford's funds he still doesn't have resource stocks as his top holdings for example. I happen to think he has too much in tobacco stocks BTW - but that's another story. Now the special super cycle is over, I prefer a more generalist fund, and would rather add money to Neil Woodford for example than add to these narrow funds. He could add to resources if he thought timing right So personally I wouldn't and am not adding to them. I don't think the buy argument is ready yet, and they could suffer longer and may not have bottomed. I also see little need for a specialist fund in the resources area now (except perhaps gold producers). I've reduced over the last few years, as I say. Resources for me (except gold) are just a sector again now like any other - nothing special about them. Where I have conviction in these sectors is my daughter's portfolios. I hold similar funds bought from Thailand via KTAM. I'm holding those for 10 - 15 years or so from now, and believe commodities and resources will come back in fashion during that time. So on a long term basis (10 years+) OK. But again I'm not adding to them yet. So all in all for me would be hold or reduce not buy. For JPM look at alternatives as in addition to all the other negatives the manager over last 3 years has under performed even a poorly performing sector. Between JPM and Blackrock G&G, I prefer Blackrock G&G just for the gold theme. If economies do go pear shaped, equities fall , bonds crash etc, there's a chance people will move to gold. In such an event holding quality gold stocks may be worthwhile. But this is purely for diversification purposes. It's also on Hargreaves Lansdown's Wealth 150 top funds list, whereas JPM was recently removed. I should add, I also hold some of the stocks these funds hold, like BHP, RIO, etc. By holding the stocks directly I can be more nimble. Being nimble isn't as easy with unit trusts, not counting the additional fees for a fund that is no longer generating superior performance Over the last few years I've done well with BHP and RIO range trading them. bigmango.boards.net/post/28136/threadwhereas JPM NR hasn't done well with just a buy and hold in the last few years. JPM has about 11% - 12% of its portfolio in these two stocks. Cheers Fletch  |
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AyG
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Post by AyG on Jun 12, 2015 8:54:18 GMT 7
The investment trust currently yields 6.95%. The funds are both accumulation units so don't pay out, but I'm presuming are generating a similar level of income internally (slightly less once one takes the trust's discount to NAV). There doesn't seem to be a strong correlation between gold price and gold producers share price. (See, for example, seekingalpha.com/article/286619-how-gold-mining-companies-stock-prices-correlate-with-gold-and-stock-prices ) The share prices certainly didn't go up anything like as much as the gold price did recently. I guess the concern is when the gold price falls so low that mines stop being profitable and are closed down. We're in such strange times now, principally because of America's crazy monetary policy, but also because of the rise of shale oil, the slowing growth of China. The markets have become so distorted and the future so uncertain that I find it difficult to find anywhere I'd be happy to put my money, and normally I like to be fully invested, seeing cash as simply a drag on returns. But for the moment I think I'm just going to sit on the side lines and let my cash be eroded by inflation. That seems better than the alternatives for now. |
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Post by rgs2001uk on Jun 12, 2015 14:40:01 GMT 7
AyG, ah the eternal question, when to sell?
I have the opposite problem at the moment, my Prudential shares have more than doubled, should I sell half of them, who knows, at the moment I dont even know where to park the cash.
Also onto another point Fletch pointed out elsewhere, do we follow the fund or the fund manager, I believe the man from the Pru is leaving and looking for new challenges.
The easy option for me would just to buy more SAB Miller or Diageo shares, or Scottish Mortgage Invest Trust.
Decisions decisions.
Your final paragraph rings true on so many levels for me.
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AyG
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Post by AyG on Jun 14, 2015 11:52:10 GMT 7
AyG, ah the eternal question, when to sell? I have the opposite problem at the moment, my Prudential shares have more than doubled, should I sell half of them, who knows, at the moment I dont even know where to park the cash. I find it curious that "when to sell?" is asymmetrical. I (and I suspect most people) are happier to sell when the investment has risen in value than fallen; selling at a loss is much more difficult. Is it that one acknowledges one's failure in asset selection? Of course, the decision to sell is made much more difficult if one doesn't know what to do with the proceeds. |
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AyG
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Post by AyG on Jun 14, 2015 12:36:01 GMT 7
On having hit rock bottom or not, I'm not confident they have For JPM look at alternatives as in addition to all the other negatives the manager over last 3 years has under performed even a poorly performing sector. In a recent article the JPM managers say "a recovery may already be under way and that they are positive about the medium-term prospects for the asset class." The same article also says "JPM Natural Resources has been one of the worst-performing commodity-focused funds since Gregson took charge in January 2012", so I don't think I'll take his word for it. www.trustnetdirect.com/fund/features/has-jpm-natural-resources-finally-bottomed-out/609728 |
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Post by paddyjenkins on Jun 14, 2015 19:48:57 GMT 7
The question is good, the answer is hard. Resources investments rallied because China invested in domestc infrastructure and built property, in order to prop up an economy too reliant on manufacturing. That then stopped and resources investments crashed. But now China has a new direction....its so called new silk road. One question I have, apart from many others, is what resources will the new silk road development require and would that influence investment choices? I wouldnt sell resource investments, if i had any, until i had addressed the china question.
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Post by Fletchsmile on Jun 16, 2015 9:24:03 GMT 7
The question is good, the answer is hard. Resources investments rallied because China invested in domestc infrastructure and built property, in order to prop up an economy too reliant on manufacturing. That then stopped and resources investments crashed. But now China has a new direction....its so called new silk road. One question I have, apart from many others, is what resources will the new silk road development require and would that influence investment choices? I wouldnt sell resource investments, if i had any, until i had addressed the china question. Problem with China is it's economy is slowly down, so you don't want to be relying on stocks that rely on China development or growth. China stock markets are also looking in dangerous territory too - not a good sign either, as they'll impact the real economy when the correction happens. |
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Post by Fletchsmile on Jun 16, 2015 9:33:59 GMT 7
For an alternative funds to the JPM NR fund you could look at First State Global Resources fund.
I hold the Singapore unit trust version run by First State Singapore. However, if you look at the GBP version it's run along similar lines:
The First State Global Resources unit trust fund GBP(acc units) has beaten the JPM NR GBP fund in each of the last 5 discrete calendar years to 15 June.
Over 5 years, while it's also had a tough time, it lost "only" 29% compared to 46% for JPM.
I haven't reduced my First State holdings GR - however, I've significantly reduced JPM Natural resources over the last few years. Won't be adding to First State, but if someone wants a specialist fund, I think it's a better bet than JPM NR, and has proved itself so, particularly since JPM changed managers.
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AyG
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Post by AyG on Jun 16, 2015 13:38:27 GMT 7
The commodities super cycle is now over though. Not everyone agrees. From Barings: "The fall in prices for these key industrial commodities has prompted many observers to conclude that the cause lies with China's faltering economic activity, a factor that spells the end to the super cycle.
"We believe such simple analysis misses the point. We think, instead, that the changing market conditions signal an evolution and not an end to the cycle."Full article at www.moneyobserver.com/opinion/new-thinking-new-reality-global-mining |
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Post by Fletchsmile on Jun 16, 2015 14:17:05 GMT 7
Interesting article to look at it as an evolution of the commodity super cycle - not fully convincing that these new commodities would experience the same magnitude of super cycle growth, and in itself is a bit simplistic to assume so (comes across as trying to sell the next new thing), but some valid points.
Worth highlighting in the context of the JPM NR fund, I wouldn't be confident that JPM would be the right fund to pick up the changes mentioned:
- don't think the alpha is there anymore, and wouldn't be confident the fund manager's stock picking ability is up to it, for selecting the right companies to profit
- need to also consider the O&G / energy aspect of the resource fund
but does help paint a more positive picture for the mining sector
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AyG
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Post by AyG on Jun 17, 2015 9:32:57 GMT 7
For an alternative funds to the JPM NR fund you could look at First State Global Resources fund. I hold the Singapore unit trust version run by First State Singapore. However, if you look at the GBP version it's run along similar lines: The First State Global Resources unit trust fund GBP(acc units) has beaten the JPM NR GBP fund in each of the last 5 discrete calendar years to 15 June. Over 5 years, while it's also had a tough time, it lost "only" 29% compared to 46% for JPM. This morning I read that according to Chelsea Financial, reported in Money Observer "First State Global Resources underperformed its sector by 69.17 per cent". That's over 3 years. I thought that sounded pretty dreadful. Why would Fletchsmile suggest a fund that had performed so abysmally? I then went to the Chelsea Financial website to see the original article. They had benchmarked the fund against their sector "Global" which includes regular global equity funds. Shockingly shoddy analysis, and surprising that Money Observer saw fit to highlight it. www.moneyobserver.com/news/16-06-2015/are-you-invested-chronically-underperforming-trackerwww.chelseafs.co.uk/assets/Research-Centre/ViewPoint-RedZone-Table.jpg |
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Post by Fletchsmile on Jun 17, 2015 11:34:27 GMT 7
For an alternative funds to the JPM NR fund you could look at First State Global Resources fund. I hold the Singapore unit trust version run by First State Singapore. However, if you look at the GBP version it's run along similar lines: The First State Global Resources unit trust fund GBP(acc units) has beaten the JPM NR GBP fund in each of the last 5 discrete calendar years to 15 June. Over 5 years, while it's also had a tough time, it lost "only" 29% compared to 46% for JPM. This morning I read that according to Chelsea Financial, reported in Money Observer "First State Global Resources underperformed its sector by 69.17 per cent". That's over 3 years. I thought that sounded pretty dreadful. Why would Fletchsmile suggest a fund that had performed so abysmally? I then went to the Chelsea Financial website to see the original article. They had benchmarked the fund against their sector "Global" which includes regular global equity funds. Shockingly shoddy analysis, and surprising that Money Observer saw fit to highlight it. www.moneyobserver.com/news/16-06-2015/are-you-invested-chronically-underperforming-trackerwww.chelseafs.co.uk/assets/Research-Centre/ViewPoint-RedZone-Table.jpgYes that's abysmal research to compare a specialist sector fund to a global equity fund. Even if you compare the fund to the specialist sector which HL classifies it in, that's also meaningless as the "specialist" sector is just so diverse, and comparing apples and oranges If you did that for your JPM Natural resources fund you were asking about, that in turn has underperfomed the First State fund by a further 17% over 5 years So your JPM Natural resources fund would have underperformed that global index by something like 80%! |
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Post by Fletchsmile on Jun 17, 2015 11:58:34 GMT 7
BTW Just to be clear, I'm not recommending the First State Global resources fund as a buy. As in the posts above I don't think it makes sense to add to/ buy a specialist global resource fund for all the reasons in reply #1. Overall I've significantly reduced my holdings in the fund AyG asks about JPM Natural Resources. I have however, continued to hold First State Global Resources, which I think is a better fund, and has beaten JPM in each of 5 straight calendar years as well as cumulatively over 5 years. So I was saying that: 1) I think First State Global Resources fund is a better alternative to JPM Natural Resources fund in my view, and that if you hold JPM NR consider switching to First States equivalent instead. 2) If for some reason you really want to add to your positions overall (I don't and have reduced my overall positions in this sector and voted with my feet) then I'd suggest First State is a better bet than JPM. All relative If someone was looking at global equities that's a totally different question, and I'd hold other funds that have outperformed that global equity benchmark. These specialist funds should be only a small part of an overall portfolio for special opportunities - if worthwhile Attachment DeletedKey: yellow line = global equities generally orange line = First State global resources fund blue line = JPM natural resources fund Discrete calendar year performance Investment 16/06/10 - 16/06/11 16/06/11 - 16/06/12 16/06/12 - 16/06/13 16/06/13 - 16/06/14 16/06/14 -16/06/15 First State Global Resources B GBP Acc: 20.28% -24.66% -11.59% 5.97% -18.33% JPM Natural Resources A Acc: 14.96% -26.59% -20.58% 3.53% -24.04% Cumulative performance Investment 3 months 6 months 1 year 3 years 5 years First State Global Resources B GBP Acc: -0.93% 3.2% -18.33% -23.48% -30.66% JPM Natural Resources A Acc 1.4% 2.63% -24.04% -37.54% -47.28% |
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Post by Fletchsmile on Jun 25, 2015 20:30:37 GMT 7
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