Investors Pin Hopes on Commodity Funds in January

Given the rally in commodity prices last, it is not surprising that funds in this sector were among the popular with Morningstar investors last month

Karen Kwok 10 February, 2017 | 12:28PM
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The rebound of commodity prices in 2016 has benefited many commodity-related investments, including open-ended funds.  Commodity-related funds were among the top five best performing in 2016 – so it is not surprising that they continue to remain popular with Morningstar investors.

In January 2017, the Gold Rated BlackRock Gold and General fund and the Bronze Rated JP Morgan Natural Resources fund were both in the top 10 most popular hit list on Morningstar.co.uk.

This BlackRock Gold and General fund has been on the list for the past 13 months. However, last month was the first time the JP Morgan Natural Resources appeared on this list. Both funds saw massive gains in the year of 2016: BlackRock Gold and General gained 78.7% while JP Morgan Natural Resources gained 80.7%.

The strong outperformance of commodity and resources equities was driven by several factors, according to Fatima Khizou, fund analyst with Morningstar.  

“Slightly reduced concerns around the Chinese economic outlook, diminishing expectations of US interest rate rises and encouraging signs on the supply and demand fronts have all contributed to a positive backdrop for the sector,” said Khizou.

Will Commodities Rally Continue its Momentum in 2017?

An increase in infrastructure spending in the US and Europe should help maintain the upward momentum in commodity prices going forward, said Dylan Ball, executive vice president with Templeton Global Equity Group.

Koen Straetmans, senior multi-asset strategist at NN Investment Partner echoes Ball’s views, saying in 2017, the increased geopolitical risk or an increase in protectionism could just as easily lead to commodity supply disruption, sending prices higher in the near term, despite negatively impacting commodity demand.

But many investors continue to maintain a cautious stance towards the sector, given the sharp losses and disillusionment experienced in the past few years, said Morningstar’s Khizou. Investors can access the sector through mandates that invest across all the main sub-sectors of the commodity spectrum, said Khizou.

Two Top Rated Commodities Funds

Khizou believes the BlackRock Gold and General fund remains a strong offering for investors seeking mainstream gold and precious-metals equity exposure in a risk-controlled manner. Evy Hambro has been fund manager since April 2009. Hambro brings a wealth of experience to this fund and has proved over time that he is a talented portfolio manager who is supported by a well-resourced team with significant expertise and a co-manager, Tom Holl, said Khizou.

The JP Morgan Global Natural Resources fund is run by Neil Gregson who became lead manager in February 2012. The team aims to add value through material investments in small-cap stocks from pre-production stage and discovery to reserve definition, using a bottom-up analysis that focuses on mis-valued companies. The fund has benefited from its emphasis on riskier small companies at times, said Khizou.

Silver-Rated UK Equity Funds Tops List

The Silver Rated CF Woodford Equity Income fund continues to top the most popular hit list on Morningstar.co.uk over the past 13 months.

Morningstar analyst Peter Brunt said his confidence is growing in this fund.

“It is managed by one of the most talented fund managers in the equity income sector, and, after some initial teething problems, we are reassured to see a period of increased stability at Woodford Investment Management,” said Brunt. The fund has gained 5.3% over the year to date.

Another UK equity fund - the Gold Rated CF Lindsell Train UK Equity  - was second on January’s ‘hit’ list, following by the AXA Framlington Biotech fund. Bronze Rated Fundsmith Equity came fourth, while Legg Mason IF Japan Equity and Gold Rated Vanguard FTSE Dev World ex UK Equity Index were eighth and tenth on the most popular hit list among Morningstar.co.uk readers.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk