Natural resources equities highlighted by Schroders fund

Despite the macroeconomic and environmental events that have dominated the news and challenged commodity markets in 2011 there are considerable opportunities in natural resources equities, it is claimed.

This is being sustained by a super cycle of emerging market growth that is providing structural support to the sector, according to Schroders.

Emerging markets constitute over 50% of global commodity consumption and this is likely to rise over the next decade due to strong demographic trends, the investment company believes.

 Equally, industrialisation and urbanisation, particularly in China are key drivers of demand growth, which in turn is putting pressure on supply. This has created robust supply and demand fundamentals and therefore significant value and upside is emerging in the natural resources equities space.
Current investment themes include copper where supply is facing declining output because large mines are maturing with declining quality and regions, such as central Africa where there are new and large supplies, are facing high sovereign risks, it says.
 
At the same time demand is being driven by construction, energy and transport that is expected to support higher prices in future.  Another trend is iron ore where limited spare capacity globally and rising demand, particularly from China for steel production, is driving the investment outlook.

The Schroder ISF Global Resources Equity recently celebrated one year returning 32.5% and 11.72% over six months versus the benchmark (35% MSCI AC World Energy + 65% MSCI AC World Materials) that returned 30.3% and 11.1% respectively. It also ranked competitively amongst peers reaching first decile over one year and first quartile over six months.
 
‘The outlook for natural resources equities is compelling because as the macroeconomic concerns of the first quarter recede, we believe that the value inherent in many commodity equities will manifest itself over the balance of 2011,’ said Sam Catalano, fund manager of Schroder ISF Global Resources Equity.

‘We are seeing ample growth opportunities at reasonable valuations driven by tight supply/demand balances, in particular with copper, coal, iron ore and industrials with exposure to deep oil and mining infrastructure,’ he explained.

‘The Fund has benefited from its unique and flexible approach of being able to invest in a broad range of natural resource equities and also from the alpha provided by investing in industrial equities that are exposed to natural resources.  Our investment process uses ideas from the specialist fund managers on the global equities team which has extensive technical expertise and track record credibility,’ he added.