Gold stocks make up more than 45% of the JPMorgan Fleming Natural Resources fund, show- ing how well...
Gold stocks make up more than 45% of the JPMorgan Fleming Natural Resources fund, show- ing how well the sector has performed in a period of political and economic uncertainty.
Manager Ian Henderson, says his fund has a 45.5% exposure in gold, 25.1% for energy, 15.8% in base metals, 8.3% in platinum, 4.4% in diamonds and 0.9% in cash.
Henderson explains the economic background is uncertain and coupled with investor concerns about war in Iraq and poor sentiment following the accountancy scandals in the US, this makes gold an ideal commodity for investors. Henderson adds that gold companies are performing well at present, which adds to the attraction.
His top three holdings by country are in Australia, Canada and South Africa, and he is underweight the US. Although it has some of the largest gold mines in the world, valuations in the US are too high, he says. Another factor is that the large US gold mines are finding it harder to increase output as they already produce so much.
In precious metals, Henderson says: 'The whole supply/demand equation is very positive and feels the risks are on the upside rather than on the downside.'
He adds that investment demand in the sector has built up as a result of hedge fund managers buying gold.
The strength of gold mining companies in particular can be seen by the best-performing natural resources stocks. They feature prominently among the top 10 performers for the year to 12 November in the Goldman Sachs natural resources index.
Goldcorp, a US-owned mining company with operations in the US and Canada, was ranked first, returning 71.9% for the year. Another gold miner placed second, Meridian Gold, which has operations in the US and Chile, and posted growth of 65.15%, in dollar terms. A Canadian diamond producer, Aber Diamond, took the third best return and posted 45.73%.
In contrast, companies involved in power production or transportation made up the bottom of the index. The companies that made up the bottom three returns for the year to 12 November all had interests in either coal, gas or oil production and transportation.
US company Dynegy, the worst performer for the period, posted -96.78% followed by Williams, which fell 88.64%, and El Paso, down 82.52%.
As a whole, the natural resources sector, comprising 110 companies,, returned -17.99% for the year to 12 November.
In the energy sector, Henderson says he has a bias towards large natural gas producers. Again he is skewed away from the US as he says the overall decline ratio for gas producing fields in the US is high. Instead he has Canadian holdings such as Canadian Natural resources and Talisman Energy.
At SalomonSmithBarney, analyst Fiona Perrott-Humphrey says the mining sector remains subject to weak demand in key metal markets and resilient cashflows. 'This sector highlights the continuing tug of war between negative earnings momentum in base metal commodity areas and the resilient cashflow of the major mining groups,' she says. 'Cashflow remains underpinned by continuing resilience in core areas such as iron ore, coking coal and precious metals.'
Hard for large miners to maintain output growth.
Gold performing well.
Uncertain investor climate favours gold.
Energy companies showing poor performance.
Decline ratio of gas producers in US high.
Moves to overweight equities and fixed income
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