* Average actively managed fund down 5.51 pct in Q4
* Vescore's market neutral fund tops Lipper league table
* Sector rotation into miners may boost equity prices
By Claire Milhench
LONDON, Jan 21 Commodity fund managers who
performed well over the testing final quarter of 2012 believe
metals commodities prices could do better than expected in early
2013 due to a combination of Chinese restocking and continued
Managers at Vescore, Investec and BasInvest, who were
amongst the few to make money in the fourth quarter, are
relatively optimistic about the outlook for commodities going
into 2013, tipping copper, platinum and palladium.
"We believe there is a possibility for commodity prices to
surprise to the upside due to production consensus estimates
being overly generous," said Bradley George, head of Investec
Asset Management's Commodities and Resources team.
The improved outlook follows a bruising quarter for many,
with the average actively managed commodity fund in the Lipper
Global Commodity sector down 5.51 percent, and only a handful
making positive returns. Lipper is a unit of Thomson Reuters.
The funds that topped the league table were a mixture of
market neutral and hybrid equity and futures funds. These tended
to benefit from positions in commodities that rebounded off
lows, or avoiding those that went into reverse, like grains.
Two of those that did well - the Investec Global Commodities
& Resources Strategy and BasInvest's Basic Star
Commodity Fund - favoured metals and dry bulk
commodities in the fourth quarter, such as copper, palladium,
platinum, coal and iron ore, whilst shunning gold miners.
Both managers believe supply problems and Chinese buying
should continue to support these commodities in early 2013.
"Supply disruptions of the past year include labour strikes
on platinum operations in South Africa (and) capital delays on
copper mines in Chile," said Investec's George.
He believes the consensus may be wrong on platinum and
palladium, and that the supply shock in South Africa is
potentially bigger than the market thinks.
"Mining companies have sold off stockpiles to offset
production losses and this raises the risk of further scarcity
in the market from continued labour unrest," he said.
Ronald Wildmann, a fund manager at BasInvest, adds that
copper is particularly poor at responding to price rises. "Even
if prices increase, you don't get projects coming through any
faster. I am very positive because all lights are on green."
On the demand side, the Chinese economy is thought to have
bottomed out, raising hopes it will begin restocking. The latest
GDP figures show that China's economy grew at a slightly
faster-than-expected 7.9 percent in the fourth quarter.
"China has turned ... we are only at the start of the
restocking," said Wildmann.
Both George and Wildmann benefited from exposures to iron
ore in the fourth quarter, with George citing fund holdings
London Mining, Fortescue Metals Group and
Northland Resources as outstanding performers.
Wildmann, who was holding Rio Tinto, said iron ore
had been bumping along at low levels at the end of September,
hit by over-supply and sluggish Chinese demand. This turned
around in the fourth quarter, with iron ore prices hitting a
15-month high of $158.50 a tonne in early January.
"This was due to aggressive Chinese buying, as traders and
steel mills restocked ahead of the cyclone season in Western
Australia, and new infrastructure projects were sanctioned in
China for build-out in 2013," George said.
Both managers avoided a drag on performance from gold
miners, with George noting that the HSBC Global Gold Mines Index
fell 15.1 percent, as miners missed their production estimates.
"Gold mining equities had a terrible Q4," Wildmann agreed.
"The physical gold price came off and gold miners were
already suffering from huge cost over-runs, delays and problems
executing new projects."
Base metal miners are seen benefiting from a pick up in
flows from generalist equity managers, which are still
under-invested in natural resources. "If a recovery emerges,
it's an opportunity for the resources sector to rally," said
Wildmann thought the market was just at the start of a
sector rotation out of defensive stocks and into mining stocks.
Because miners and oil and gas companies make up a sizeable
proportion of the FTSE 100, generalist equity managers who
benchmark their funds against it cannot afford to stay on the
sidelines if performance picks up.
The top performer in the league table was Vescore's CYD
Alpha Commodities Fund, a market neutral fund
investing in commodity derivatives. Market neutral funds tend to
outperform when long-biased funds do badly as they aim to hedge
out market risk.
Florian Schepp, managing partner at Vescore, said some of
the fund's outperformance was due to other managers being caught
out by the end of the grains rally.
The funds that did well in the third quarter had higher
exposures to the agriculture sector. "But that turned around in
the last quarter, and we made money there," said Schepp. He
noted that wheat prices lost out in November due to weaker U.S.
export demand and stronger supply from the Black Sea region.
Like Wildmann and George, Schepp is becoming more positive
about taking directional (long-only) exposure in commodities as
the environment is now more supportive. "It should be a moderate
to good year for long-only indices," he said.