Group's resources fund will have the ability to be 100% invested in cash if managers choose
Martin Currie is to launch a resources fund with the managers able to put up to 100% of the portfolio in cash.
The fund, to be run by Wendy Anderson and Chris Butler, would have a 60% weighting to equities if it were to launch immediately, according to Anderson. The portfolio will not be able to hold bonds and its aim is to outperform the MSCI Resources index.
Anderson and Butler, who intend to run between 25 and 40 holdings, do not plan to let the benchmark weighting of stocks in the index influence their portfolio construction. An example of this, Anderson said, is Exxon Mobil, which makes up 15% of the index but is zero weighted in the portfolio.
They estimate their investment universe has some 200 stocks. At present, the pair are running a dummy portfolio in-house prior to an actual launch within a month.
If the fund were to be 100% invested, Anderson and Butler would not hold more than 40 stocks. However, if the equity weighting were to be very low, this figure could come down to below 25, Anderson said.
The cash level in the portfolio will be actively managed by the two managers. Some 50% of the equity portfolio will be held as a core and Anderson estimated these holdings are likely to be in the fund for around six months or more.
The Resources Absolute Return Fund is the latest hedge fund offering from the group, which has so far concentrated on long/short portfolios. It comes at the request of the first investor into the unregulated fund, which it is to be run as a long-only and cash vehicle.
The resources sector comprises two elements: energy and materials stocks. Anderson, who joined six months ago from Lehman Brothers where she was an energy research specialist, will run the energy section of the portfolio. Butler, who has been with Martin Currie for 14 years, is to run the materials stocks.
Within the energy sector, Anderson's strategy is to be cautious at present, focusing on stocks with defensive characteristics.
'There is so much short-termism in the sector because of the focus on a potential attack on Iraq,' said Anderson.
Martin Currie estimates that with the oil price now at around $28 per barrel, this factors in a $5 war premium. In the event of a short war, Anderson predicted a spike up to $40, while no attack would lead to a gradual fall down to $20-$24. In a worst case scenario of a protracted conflict, she said, the oil price would remain high.
Anderson is confident in her stockpicking abilities, even though she did not join a fund management firm until six months ago.
'I have spent 12 years as a sell-side analyst, which means I know most of these companies inside out,' she said.
Apart from the political situation in the Middle East, the big issue facing the oil sector is the drive by companies for growth. According to Anderson, the issue is not one of a general oil shortage but is about having the capacity to achieve greater production. She pointed out Iraq currently produces 350,000 barrels per day and has the capacity to produce 2.2 million but, with investment, this could soon rise to four million.
One stock she likes is Total, which is delivering volume growth of around 8% per year compared to the average of 1.5%-2%. She said this reflects its strong connections in the Middle East and the fact it is a forerunner in helping to develop new reserves in countries such as Angola.
Anderson sees energy stocks as forming one of the few truly global sectors in which it is possible to compare the cost structure in each business. She cited BP as being the company that has the 'lowest operating cost per barrel.'
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