The First State Global Resources Fund has been removed from the Wealth 150 list of our favourite funds across the major sectors. It was added in December 2003 and initially performed well, but recent performance has been disappointing.
During the first decade of this century soaring demand for commodities and resources from developing nations such as China sent commodity prices higher, boosting company earnings. This continued until late 2010, at which point demand from China waned. At the same time investment in new mines, initiated while commodity prices were high, has resulted in a swell of supply. Falling demand alongside rising supply has caused a sharp decline in commodity prices, creating a difficult environment for commodity and resources funds, including First State Global Resources, managed by Joanne Warner.
Lower commodity prices has resulted in an increasing number of bankruptcies among high-cost producers, and curtailed investment in new mines. The manager expects this to result in reduced supply, while the industrialisation of emerging economies such as India continues to drive demand for raw materials over the long term. As a result, she believes we could start to see a reversal of the falling prices and the outlook for commodity company fortunes could improve.
If Joanne Warner is proved correct, the fund could go on to perform well. Indeed, after this difficult period many companies in the energy, mining and resources sectors are trading on depressed valuations, so any sustained rebound in commodity prices could see their share prices recover although there are no guarantees. The fund has exposure to higher-risk smaller companies which can be more volatile than their larger counterparts.
However, as our quantitative analysis of commodity-focused funds has become more sophisticated over time, it has become increasingly clear, in our opinion, that few managers in these areas have the ability to consistently add value for investors. Over Joanne Warner's tenure, performance has been broadly in line with the index, with the fund returning 25.8%* compared with 28.1% for the Euromoney Global Mining / MSCI AC Energy (75:25) Index. Furthermore, our analysis suggests the manager's stock picking has deteriorated, detracting from returns since July 2011.
Although past performance is not a guide to future returns
Past performance is not a guide to future returns. *Lipper IM to 01/05/15
|Annual percentage growth|
| May 10 -
| May 11 -
| May 12 -
| May 13 -
| May 14 -
|First State Global Resources Fund||27.42%||-22.35%||-18.11%||0.17%||-8.09%|
|Euromoney Global Mining/MSCI AC Energy||22.77%||-18.70%||-13.49%||-3.52%||-6.01%|
The Wealth 150 is reserved for fund managers we believe to be of the highest calibre. We have therefore removed the First State Global Resources Fund, as we have lost conviction in the manager's ability to add value for investors over the long term.
Please note this should not be taken as a signal to make changes to a portfolio, providing the portfolio's objectives continue to be met. The First State Global Resources Fund, similar to many specialist funds, is one way to access this specialist niche area, other alternatives include ETFs.
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