By Robert Maharajh Credit Suisse Asset Management (CSAM) is set to re-organise one of its gold fun...
By Robert Maharajh
Credit Suisse Asset Management (CSAM) is set to re-organise one of its gold funds to create a Luxembourg-based global resources vehicle, which will be run by Neil Gregson.
The fund will complement CSAM's recently launched suite of thematic funds. The new portfolio will be benchmarked to a composite index made up of a number of MSCI sub-sectors.
This will comprise 50% metals and mining, 25% oil and gas, 15% paper and forestry and 10% chemicals.
Gregson said: "In the late 1980s and early 1990s the gold fund was very profitable with assets of around $300m. In the last five years, however, the fund's assets have diminished substantially.
"The new fund will have a much broader mandate. This diversification element is important: while individual sub-sectors in this area are cyclical, they do not move together.
"In a global growth cycle, traditionally, gold rallies first then base metals, then bulk iron ore and coal. Oil and gas are different again. The combination of investing in these sectors gives a longer investment cycle and provides a vehicle less volatile than its individual components.
"At present the leading indicators seem to show that world industrial production is declining and that we are heading for a third-quarter growth slowdown. The resources sector, which functions like a leading indicator, is discounting this and we think it has value."
In addition resources companies are far better managed than they were in the late 1970s and early 1980s, Gregson said. He added: "In those days, when prices were good they would focus on capital expenditure, with little concern about increasing their current return on capital, to the extent that some nearly went bust.
"Nowadays managers are driven by financial criteria and aim to keep costs low. If they spend, they ensure an adequate return on capital.
As a result many of these companies do not deserve the low ratings they are on. The problem is that the market remembers what they used to be like."
Industry consolidation should be a positive factor for the fund. "As a result of this process, the industry is likely to be less fragmented which should lead to higher returns," Gregson said.
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