Good resource prospects in tough markets
Page 1 of 1
Christine St Anne: The resources sector continues to remain under pressure. Fund manager David Whitten has recently launched a natural resources fund. Today, he joins us to talk about some of the challenges in the sector, but also the opportunities.
David Whitten: Thank you very much.
St Anne: David, we have falling commodity prices, high cost of doing business, and now a slowing China, why have you decided to launch a fund in this environment?
Whitten: Look, I think it's a very good time to launch a natural resources fund. We've seeing a strong correction in some of the prices. Last 12 months, I think, the global natural resources market has fallen about 15%, mainly led by the mining sector, but there are the soft commodities and the energy sectors that have been less so.
I think there is some corporate activity shaping up in the sector, and as I say, the valuations both on a price net present value and any other form of valuations look quite attractive again as there are in many times throughout the last 10 or 15 years in a secular bull market. I still believe that the drivers behind natural resources demand, population prosperity, and growing demand for natural resources is there throughout the world.
St Anne: David, also one of the challenges that many of these companies are facing is a delay in some of the projects. Is this a real concern for investors?
Whitten: Look a short-term concern for maybe earnings expectations, but really I think it's a prudent thing to do for companies, and perhaps it may have the beneficial effect of actually extending the natural resources bull market, if you like, to a greater extent.
The fact that these companies have the flexibility to delay projects, because of the depth of their projects and the database of their projects is a good thing, and I think it's prudent to do that at certain times. There is a slowdown going down in China, but we got to remember at 7% plus, it's probably growing faster in a total GDP sense than it was five years ago, when it was growing at double-digit GDPs.
St Anne: David, given all these challenges, what companies are you seeing that are best placed to succeed in this environment?
Whitten: Our view of natural resources includes the agricultural sector as well as the traditional mining and energy, which an Australian investor is often very familiar with. So in our portfolio that we've just launched the new fund this month, we've added a number of fertilizer names, agricultural names that will benefit from the growing demand for food and growing demand for protein.
And it's not just a China story when it comes to food. Countries like Brazil or India or even Africa, their middle class is growing very rapidly and their populations, of course, are growing rapidly, and we see strong demand from some of those sectors.
The energy sector as well is always a sector, which grows over time, and there is a lot of interest in this sector at the moment, particularly some of the North American energy companies. We like a lot some of the shale oil players, LNG in North America is great, gaining credence, and there has been quite a bit of takeover activity just in the last week or two in some of those stocks.
St Anne: A lot of investors look at Rio and BHP and Fortescue as big the resource players?
St Anne: David, what are the other companies in the investment horizon?
Whitten: If you look at the Australian ASX 300, for instance, about 25% of that is resource companies, and of that 300 companies about a 100 - I think, it's about 115 companies are natural resource companies really dominated by four companies; so BHP, Rio Tinto, Woodside, and Newcrest comprise about 60% of that and some of those companies, particularly BHP and Rio, have a strong weighting towards iron-ore and coal in some cases.
So, we are very focused in some of those areas, but there is a whole world out there in some of the other natural resource areas, particularly in energy and agriculture, you can't really get that sort of exposure to an Australian - if you're Australian-only investor.
St Anne: Finally, David can you give us an outlook for the commodity sector?
Whitten: Yeah, we don't predict short-term moves for commodity prices. What I can say, for instance, and you may be not so familiar with the soft commodities. The grains importing into China has grown by 45% in the last 12 months. Those stats just came out last month. Demand for food, protein used for feed as well as feeding people is growing very strongly, and we see strong rises potentially for some of those soft commodities such as we've seen that through drought and - with wheat and corn and palm oil, sugar, those types of commodities have real potential.
Over the last decade we've seen iron-ore, coking coal prices lead the charge, demand for steel infrastructure in China and other parts of the world. Those commodity prices have risen about 350% to 400% over the last decade. Compare that to some of the soft commodities, they are probably only just approaching 30-year levels in adjusted for inflation and have probably increased about 100% to 125%, 150% over the last decade. So, we think that there is potentially quite a way to go there, some of those commodities in the longer term and I stress longer term. Predicting short-term commodity moves is a very imprecise and difficult thing to do and we don't do it in our investment process.
St Anne: David, thanks so much for your insights today.
Whitten: Thank you very much.
|This report appeared on www.morningstar.com.au||2013 Morningstar Australasia Pty Limited|
© Copyright 2013 Morningstar Australasia Pty Ltd ABN: 95 090 665 544 ("Morningstar"), AFSL no 240892. (a subsidiary of Morningstar, Inc.). This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written content of Morningstar. Some of the material provided is published under licence from ASX Operations Pty Limited ACN 004 523 782 ("ASXO").
DISCLAIMER: To the extent that any of the content above constitutes advice, it is general advice that has been prepared without reference to your objectives, financial situation or needs. Before acting on any advice, you should consider the appropriateness of the advice and we recommend you obtain appropriate financial, legal and taxation advice before making any financial investment decision. If applicable, investors should obtain the relevant product disclosure statement and consider it before making any decision to invest. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/About/ FSG or phone Morningstar on 1800 03 44 55 to request a copy. The data and content contained herein are not guaranteed to be accurate, complete or timely. Neither Morningstar, nor its affiliates nor their content providers will have any liability for any use or distribution of any of this information
Dow Jones & Co, Inc. is not a registered investment adviser and, under no circumstances shall any of the information provided herein be construed as a buy or sell recommendation, or investment or tax advice of any kind. You acknowledge that you are responsible for determining the nature, potential value and suitability for yourself of any particular security, transaction or investment strategy and that Dow Jones & Co, Inc. does not give such advice or recommendations.
DISCLOSURE: Employees may have an interest in the securities discussed in this report.