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the cor­ner from In­vestec’s Gre­sham Street head­quar­ters in Lon­don’s Square Mile, port­fo­lio man­agers at In­vestec As­set Man­age­ment are less down­beat than their bank­ing peers They are, how­ever, tak­ing a cau­tious and se­lec­tive ap­proach.

Com­modi­ties prices are back where they were when the up cy­cle be­gan in 2002, ac­cord­ing to the Bloomberg com­modi­ties to­tal re­turn in­dex, which mea­sures phys­i­cal com­modi­ties prices.

“That in it­self mer­its some con­sid­er­a­tion and some re­flec­tion, when you think of how the world has changed in those 13 years,” says Tom Nel­son, head of com­modi­ties & resources. “Growth in China may have slowed but the Chi­nese econ­omy is im­mea­sur­ably big­ger to­day than it was then.”

Since March 2009, when mar­kets started to re­cover from the global financial cri­sis, phys­i­cal com­modi­ties have un­der­per­formed, slip­ping 16%, com­pared with a 142% rise in global eq­ui­ties. That’s re­flected in In­vestec As­set Man­age­ment’s re­source port­fo­lios. As of June 30, to­tal as­sets un­der man­age­ment in its com­modi­ties and resources funds sat at $2,2bn, af­ter peak­ing at around $8bn in 2010-11. The weak com­modi­ties mar­kets and their ef­fect on com­pany share prices are also re­flected in the per­for­mance statis­tics, with the In­vestec Global Nat­u­ral Resources Fund re­turn­ing a neg­a­tive 22,4% in the first eight months of the year.

Still, Nel­son and Ge­orge Chevely, who co-man­age the fund, are see­ing signs of life — per­haps more so in the oil mar­ket, but in­creas­ingly in base met­als too, as sup­ply/de­mand dy­nam­ics shift. Though sen­ti­ment re­mains bear­ish, with too much oil sit­ting in stor­age, sup­ply is mov­ing lower and de­mand is ris­ing.

With lots of pro­duc­tion com­ing off­line, par­tic­u­larly in the US shale mar­ket, spare ca­pac­ity is al­most en­tirely held by Saudi Ara­bia. It means any in­ter­rup­tion of sup­ply could push prices sharply higher. “Our as­sess­ment of the mar­ket look­ing into 2016 is that we are go­ing to re­quire an oil price which gives the US shale rigs an in­cen­tive to come back to work,” he says.

While turn­ing off the oil taps can quite quickly be felt in the sup­ply dy­nam­ics in the oil mar­ket, it takes longer to be felt in the min­ing industry, where com­pa­nies have been cut­ting back on ex­pan­sion and trim­ming pro­duc­tion for the past three years. Sen­ti­ment in this mar­ket re­mains “ter­ri­ble”, Chevely says.

Cop­per is an ex­am­ple of an­other com­mod­ity that In­vestec As­set Man­age­ment expects to re­cover, with bonded ware­house stocks in China fall­ing from 700 000 t in June to about 400 000 t. “It's not the same for all met­als, but we have seen signs of more ac­tiv­ity in China in the last two months than we have seen for a while,” he says. “Is it go­ing to con­tinue? We don't know. Is this a great re­cov­ery? We don't think so.”

Iron ore, on the other hand, could have fur­ther to fall.

It’s cash flow and bal­ance sheets that the Global Nat­u­ral Resources team is fo­cused on as it looks for in­vest­ments in the sec­tor. It’s also steer­ing clear of small caps and highly lever­aged com­pa­nies.

While the fund re­mains more weighted to­wards en­ergy stocks, the two top hold­ings are BHP and Rio. Chevely says it’s been in­creas­ing its ex­po­sure to base met­als, at the ex­pense of en­ergy.

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