Ausbil Global Resources Fund Portfolio Managers, Luke Smith and James Stewart introduce the fund, the return characteristics of global resources companies and why iron ore remains strong.
Jessica Amir: Thanks for tuning into the Finance News Network. I'm Jessica Amir at the offices of Ausbil with Ausbil's Global Resource Fund Portfolio Managers Luke Smith and James Stewart. Gentlemen, welcome to the network.
Luke Smith: Thank you.
James Stewart: Thank you.
Jessica Amir: First up, could you just give us an introduction to the fund?
James Stewart: The Ausbil Global Resources Fund invests in natural resources globally. We used the same proven approach that's been used by Ausbil for many year, which includes a top down macro and commodity analysis combined with bottom up valuation basis on the companies that we look at. We attempt to generate positive returns through the cycle using our long/shorts investment approach.
Jessica Amir: Thanks James. Now over to you Luke. We've seen commodities do quite well. In fact the iron ore price is at a five year high. What's fuelled this and how is this benefiting global resources?
Luke Smith: There's two main factors that have driven the strength in iron ore prices this year. Firstly demand and then secondly issues around supply.
In terms of demand Chinese steel production has been growing at 10 per cent year on year. The property market has been primarily the factor that's driven that.
Then secondly, in terms of supply, two key exporting nations in Brazil and Australia continue to have issues. Firstly, with Brazil and the tailings dam failure this year. Then secondly in Australia with the cyclones and issues at both mines and processing.
As a result we're seeing strength in iron ore prices. That's fed into strength of earnings cashflow. Will likely also result in strong capital management programs by the key producing companies.
Jessica Amir: That's Luke. Now back to you James. Just tell us about the investment objectives and the style of the fund.
James Stewart: Our objective is to generate absolute returns through the cycle. The universe we look at is global natural resources, which includes hard commodities. Things like iron ore, gold, copper, and nickel, et cetera. Soft commodities, agriculture, forestry, chemicals. Also any directly associated services.
We do use a long/short approach to investing with the goal of managing risk with an out portfolio and generating risk controlled out performance through the cycle.
Jessica Amir: Great. What are your largest exposures in the fund?
James Stewart: Sure. As Luke mentioned we are positive on iron ore as a commodity. That's our largest sector exposure at the moment. In terms of companies that we like locally Rio Tinto (ASX:RIO) and Fortescue Metals (ASX:FMG) are amongst our largest exposures. In terms of a global basis we also own Champion Iron (ASX:CIA) (TSE:CIA), which is Canadian listed, and the Labrador Iron Ore Royalty Company (TSE:LIF), as well, which is listed in Canada.
Jessica Amir: Great. Now can you talk about performance?
James Stewart: Pleasingly last year we generated a return of 8.9 per cent after all fees. This was during a very volatile year when the MSCI Global Select Natural Resources Index was down 2.2 per cent during the year.
Jessica Amir: Thanks James.Now back to you Luke. The sector resources and commodities itself is quite volatile and cyclical. How should investors navigate through this?
Luke Smith: I guess the key risk that's impacting the sector at the moment is trade uncertainty. With the range, the trade wars that are ongoing impacting on global growth more broadly. As a result we're taking shorter term tactical trading opportunities where we see valuations appropriate. But clearly that risk management framework that we employ to try and navigate through trade wars is the key factor that we're focusing on.
Jessica Amir: Just lastly, before we let you go, what's the outlook for the second half?
Luke Smith: Yes the second half, like I highlighted, is going to be dominated by trade uncertainty. In terms of our positioning we're looking to ensure that we focus on sectors that are less exposed to global trade. As a result we're focusing in on areas where China's likely to stimulate. Namely steel intensive raw materials in iron ore and met coal.
Then secondly, on a shorter term basis, we're looking at tactical opportunities from a valuation standpoint. Such as in copper and oil. Where we see opportunities but at the same time managing risk appropriately.
Jessica Amir: Luke Smith, James Stewart, thank you so much for your insights.
Luke Smith: Thank you.
James Stewart: Thank you.
For more information and to access the PDS, please visit the Ausbil Global Resources Fund.