The Merrill Lynch IIF World Mining Fund has been a favourite of Forsyth Partners for many years base...
The Merrill Lynch IIF World Mining Fund has been a favourite of Forsyth Partners for many years based on the managers' outstanding long-term performance. Despite strong inflows during the past year Evy Hambro and Graham Birch have managed to deliver solid returns, capitalising on the strong demand for resource stocks on the back of the widely discussed Chinese demand boom. Going forward the supply-demand equation for many commodities remains tight and there continues to be a case for investing in resources. China will remain an important demand driver with further support coming from the rest of Asia as well as the US. According to Hambro, concerns over Chinese demand earlier this year were overdone. He explains that demand will remain strong even with 0% GDP growth while, according to recent IMF predictions, the Chinese economy is expected to grow by 5% in 2005. Overall valuations remain compelling, especially as the long-term prices for metals are being marked higher.
It is important to note that, unlike many of its competitors, the fund does not invest in energy stocks and returns have consequently been more muted than some of these competitors.
Lead manager Evy Hambro joined Merrill Lynch as a graduate in 1994 and has worked with the Natural Resources teams based in London, Australia and Canada. He has managed the MLIIF World Gold Fund since December 2001. The London-based team is supported by Merrill Lynch's global fund management operations and a number of external brokers.
The fund invests primarily in shares of mining and metals companies throughout the world. Hambro looks for natural resources companies demonstrating attractive value, which he believes offer the best exposure to commodity prices with an acceptable level of risk. He tends to focus on mainstream mining companies using proven technological concepts and will avoid exposure to exploration investments.
Over 1,000 companies are initially screened though broker research, company meetings and mine site visits. The 250 most attractive companies will then be analysed by the team; considering the investment arithmetic, the commodity price leverage and the quality of assets. As value investing can often lead to overweight country exposure, the manager will assess deviation from the benchmark index and will attempt to limit portfolio's exposure to high risk areas. In terms of portfolio construction, the manager will exploit commodity price risk, country risk, development risk and exploration risk. A portfolio of 35-45 counters will be constructed after full consideration of country factors and operational risk. The 10 largest holdings will typically make up over 50% of assets and portfolio turnover will usually be low. Core holdings will be trimmed and increased on valuation grounds.
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