Transcription of Finance News Network Interview with Pengana Global Resources Fund Portfolio Manager, Tim ShroedersClive Tompkins: Hello Clive Tompkins reporting for the Finance News Network. Joining me from Pengana Global Resources Fund for an update is Portfolio Manager, Tim Shroeders. Tim welcome back.
Tim Shroeders: Thanks Clive.
Clive Tompkins: Investing in resources over the last couple of years has been challenging. Were you surprised about the size and the speed of the selloff?
Tim Shroeders: Yeah look I was surprised and I think most people who specialise in the space have been surprised, given the sustained nature of it. And really what we’ve seen is an order of magnitude shift, whereby a lot of the blue sky elements have been priced out. And companies, quite frankly, have been punished for bad investment decisions during the good times and not spending capital judiciously. The changing nature of financial markets also, we’ve seen a lot more day to day activity, a lot more high frequency trading has also occurred. That’s probably compounded the problem along with light volumes as a general trend, over the last few years.
Clive Tompkins: Your mandate is to be invested in resources. What is your net long exposure at the moment and which commodities are your favouring?
Tim Shroeders: We’ve actually peeled back over the last month our net exposure from about 83 per cent to about 74/75 currently. In terms of the commodity mix, we’ve probably changed that a bit too since the start of the year. In particular, we’ve lessened our iron ore exposure to around 15 per cent, oil and gas is around 30/33 per cent. Our gold exposure is sort of about 12 per cent and copper is 12 to 13 per cent. They’re the major commodity mixes and then a smattering of base metals, and more exotic commodities make up the balance.
Clive Tompkins: Thanks Tim, so what’s behind your view on oil and gas?
Tim Shroeders: Oil and gas is a great business to be in I think. The price overall is probably less volatile than a lot of other commodities. And what we’re seeing, in the US in particular is a shale phenomenon, where we’re seeing new technologies being deployed and companies doing it quite successfully, in limited regions. But what we’re seeing is the cost curve shifting. The dynamics in terms of deploying capital and getting quick payback are highly advantageous irrespective of the commodity, which makes that attractive to us. But overall, oil and gas, it’s a high margin business. The price of the underlying commodities is less volatile than others we’re seeing and returns on capital are still very favourable, compared to other sectors.
Clive Tompkins: Now Tim, I must ask you about gold and its outlook. What’s your view?
Tim Shroeders: As a resources manager you’re nearly beholden to have a positive view on gold, but we’re a bit unique in that regard. Put into context, gold up until last year had 12 consecutive rises year on year. Last year was a little bit of a kneejerk and probably a call to reality in some sense. We see prices fair, but there’s no real catalyst that we can foresee, propelling gold prices a lot higher from current levels.
Clive Tompkins: Tim now to the Fund in more detail. What’s the split between local and global equities?
Tim Shroeders: Currently the Fund has about 40 per cent net long exposure in domestic Australian listed equities, with the remainder offshore. The majority of that’s in the US with smaller exposures in Canada and the UK at this stage.
Clive Tompkins: Good and what are your largest positions?
Tim Shroeders: Our biggest holdings - BHP Billiton Limited
(ASX:BHP) and Rio Tinto Limited
(ASX:RIO) have been our biggest holdings, for a long time. However, what we’ve seen over the last few months is we pared back the holdings, in terms of our net long positions. They still remain big holdings, but not as big as what they have been historically. Vale is still a big position for us; Glencore is one that we’ve been increasing over the last six months. We think the company’s doing a very good job of managing a very different asset base from the major diversifiers, with negligible iron ore exposure and really a large tilt towards copper, particularly in Africa, but also coal assets.
And they’ve been actually an acquirer of assets during this period, when the bigger guys such as BHP and Rio have been divesting, which I think is probably a prudent strategy in sticking to the knitting of identifying value and investing through the cycle. Other larger holdings - we’ve got Occidental Petroleum (NYSE:OXY), which continues to be a large holding for us. And a number of oil and gas, Total SA (NYSE:TOT) is relatively big for us as well.
Clive Tompkins: And to the million-dollar question Tim. How has the Fund performed over the last year?
Tim Shroeders: For the last year the Fund returned 9.7 per cent, up until the end of February. Not dissimilar to what we’ve seen in the broader Australian index. Significantly we’ve wrapped up some good outperformance of our benchmark over that period, outperforming it by six or so per cent. Yeah look we’re pretty confident in how we’ve run the Fund. But this year is going to be a fairly big milestone year, we believe, in terms of seeing people transition back to the sector. And our belief is that the small end of the market has bottomed.
Clive Tompkins: And Tim, have you seen any developments in terms of how advisers are approaching portfolio construction, and how potentially your Fund might fit within that?
Tim Shroeders: I think given the way the market’s structured, particularly post Global Financial Crisis, people have had to become a lot more savvy. And part of that’s understanding differentiated products, and this is a sector specialist long/short product. And really rather than saying, I don’t invest in alternatives, what we are seeing is a significant pick up in the interest by people who understand that some of their better performing international long only managers, exclude outright investment in resources, as part of the way they invest in the sector.
Some of the more savvy people have said well resources are still a substantial part of global equity markets, accounting for roughly 20 per cent. If we invest in sector specialist, it really mitigates an asset allocation call, taking money off the table from some of those managers that have done particularly well. But also allows us to have a risk controlled way of having, both the strategic asset allocation and a tactical asset allocation to a volatile sector, such as resources.
Clive Tompkins: Thanks Tim and congratulations on beating the benchmark by a wide margin.
Tim Shroeders: Thanks Clive.
Ends
