EUROPE - The case for investing in natural resources related equities rather than direct commodity investment was made by Charlie Ober, natural resources portfolio manager at US asset manager T Rowe Price.
He was speaking in London as the group's globally invested natural resources equity fund is now being made available to European investors.
Investing in natural resources equities has the benefit of a longer duration, according to Obers. "In commodities trading opportunities to make money are easily missed as events investors have bet on must happen in a very limited period."
While more correlated to other asset classes than direct commodity investment, natural resources equities are sufficiently uncorrelated to other equity investments to add diversification to a portfolio, he explained.
"European institutions like their commodities, so it is a tough sale," said Ober. But he told IPE that in recent years the problems with commodity investments had become more visible, being highlighted especially by cases such as the Amaranth hedge fund or RedKite, a metals trading hedge fund.
Asked for an estimate on the best average exposure to natural resources equities for European institutional clients, Ober indicated a 5 - 6% range, stressing that the exposure depended on the individual situation of the investor.
He pointed to a 15% negative return in the Goldman Sachs Commodity Index compared to a 20.6% rise for the MSCI World Index. The continuing situation in which distant delivery prices for commodities futures exceed spot prices has led to a negative roll return in the sector, he explained.
The fund, set up last year as SICAF, invests globally in a wide range of companies related to the natural resources sector. Areas of investment stretch from oil, gas and coal to metal, wind and soybeans.
Included in the portfolio are companies which produce machinery needed to extract the resources or - as in the case of coal - a railway company that transports the fuel. The fund currently amounts to $100m (€77.2m). Is contains between 85 and 100 securities.
This year, Ober expects "period real price increases" in commodities with China, India and Russia being key-players, both on the supply side and the demand side.
Separately, Jonathan Blake, manager of the $409 Baring Global Resources Fund at Baring Asset Management, stated that "the current weakness investors are experiencing within the commodities market is unlikely to last past the first quarter, and the long term outlook for commodities-related equities remains attractive".
The Baring fund was made UCITSIII compliant at the end of last year. It has a concentrated porfolio of around 30 to 45 stocks.
Meanwhile, T Rowe Price has appointed Steven C. Huber as a senior portfolio specialist in the fixed income division for its Baltimore head office. He joins from Maryland State Retirement and Pension System, where he served as chief investment officer.