Sentiment towards the mining and materials sectors is undeniably poor. An economic slowdown in China, the world's greatest importer of resources, alongside an abundant supply of commodities and spiralling costs for mining companies has led to the sector’s recent demise.
Over the course of this year, UK mining companies as a whole have fallen by 35.3%, while the basic materials sector has lost 30.6%. Existing investors over the period will no doubt be deeply disappointed, whereas others will now be taking a closer look given the perceived value on offer.
The UK Equity team at Majedie have been doing just that. In their view, the sector is extremely undervalued, while mining companies are increasingly focused on efficiency, productivity, cost cutting and improving shareholder returns. Following a period of share price depression, many companies in the sector are now also offering attractive yields, although they will be variable and not guaranteed.
The team began increasing exposure to the sector in the middle of this year, adding new positions in Rio Tinto and BHP Billiton and increasing existing holdings such as Anglo American. The team admit they were slightly too early in topping up this exposure; however, as long-term investors they are comfortable waiting until the tide turns.
Elsewhere the team have been reducing exposure to other areas such as healthcare, including a position in GlaxoSmithKline. According to the team, US drug-buying groups are increasingly demanding bigger discounts on certain therapeutic drugs, while they are also seeing disappointing sales for new respiratory drugs.
Overall, the fund has a bias towards larger companies, although it also has the flexibility to invest in higher-risk small and medium-sized businesses.
Our view on this fund
The Majedie UK team's approach to investing has a contrarian tilt - they aim to be ahead of the wider market, identifying positive trends before others do. At times they have been early with their views and in repositioning the portfolio, however, in many cases they have been rewarded for their patience. For example, the portfolio was positioned conservatively prior to the onslaught of the 2008 financial crisis, meaning the fund held up comparatively well in a falling market. When markets rebounded in 2009, the team had already repositioned the portfolio relatively aggressively, participating in the ensuing stock market rally. This positioning means the fund can perform quite differently to the wider market at times.
We view the team at Majedie as a stable and highly-experienced outfit. We remain positive on the fund's long-term prospects and it remains on the Wealth 150 list of our favourite funds across the major sectors.
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