JPMorgan-led fund shines as Glencore survives ‘darkest days’

When shares of mining companies including FreeportMcMoRan Inc. to Glencore Plc were collapsing last year, a small fund run by JPMorgan Asset Management chose to hold on. Now, it’s reaping the rewards of a metals rebound that’s turning bears into bulls.

Old Mutual-JPM Natural Resources Fund has delivered a return of 79 percent this year, beating all but two of the 150 funds it competes with in North America and Western Europe that are tracked by Bloomberg. Glencore, one of its biggest holdings, has tripled after plunging 70 percent in 2015. Freeport lost about as much last year, only to double in 2016.

“Even during the darkest days at the back end of last year and two weeks of January, we held in there with mining companies that people thought were going to go bust,” said James Sutton, who helps oversee $2.5 billion in natural resources assets run by JPMorgan, including Old Mutual.

Investors are paying more attention to metal producers, which have cut debt and costs to better benefit from a rebound in prices and demand. Citigroup Inc. and Bank of America Merrill Lynch are optimistic the industry will extend its recovery. Morgan Stanley listed zinc, nickel and aluminum as its top picks for next year, boosting its forecasts for each.

Before the recovery, the industry was mired in a three-year slump as output surged and demand slowed from top consumer China. A Bloomberg Intelligence gauge of 18 global base-metal producers including Freeport, Glencore and BHP Billiton Ltd. slumped 66 percent from the end of 2012 through 2015. The sentiment is turning as the Chinese economy stabilizes and President-elect Donald Trump pledges to spend as much as $1 trillion on infrastructure in the U.S.

The BI producers index has jumped about 69 percent in 2016, heading for its best year since 2009, compared with an 11 percent gain in the S&P 500 Index of equities.

Money managers including billionaire Stanley Druckenmiller bought a combined 52 million shares of Freeport in the third quarter, more than the 47 million shares they added to their holdings in the previous three months, according to U.S. regulatory filings compiled by Bloomberg. Money poured in just before shares of the copper-mining company rallied to a 16-month high. Druckenmiller told CNBC last month that he’s making a “large bet on economic growth” after Trump’s election.

Shares of Freeport, the largest publicly traded copper producer, rallied this year as the Phoenix-based company sold assets and lowered costs. Those moves, along with an equity offering last month, prompted Moody’s Investors Service on Monday to change the company’s outlook to positive from negative, while keeping its credit rating at B1, four levels below investment grade.

“You have the potential to see increasing dividends or just better free cash flows that you haven’t seen before,” David Mazza, head of ETF and mutual-fund research at State Street Global Advisors, said in an interview at the Bloomberg headquarters in New York on Dec. 15. “We think there’s more room to run there. They’ve been so mispriced,” he said, referring to global natural-resources stocks.

Last Week, Cowen & Co. analysts including Anthony Rizzuto named Freeport as their top pick for 2017. The outlook for the shares is positive “as the current copper price being discounted is below the current spot price,” according to a Dec. 13 report.

Freeport slashed its capital expenditure to $494 million in the third quarter from $1.53 billion a year earlier. It also cut its total debt to $19 billion from $20.7 billion a year earlier. Industrywide cash costs for copper fell to $1.20 a pound in the third quarter, from $1.52 in the same period a year earlier, according to Bloomberg Intelligence.