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Fund manager insights:
Although the first quarter of 2018 was quite tough for both the resources sector and the fund, returning -3.8% and -7.6% respectively, Nicholas Stein, Coronation Resources Fund manager, says the long-term track record of the fund remains compelling.
“We still think the resources sector remains attractive, with reasonable upside in most of the stocks within the portfolio,” Stein writes in the latest fund fact sheet.
The fund invests in a broad range of resource and basic materials industry shares. This includes companies involved in mining, minerals, energy and natural resources.
According to Stein, they actively seek out attractively valued companies that could offer strong long-term growth.
“In line with Coronation’s long-term investment philosophy, we focus on valuation. We seek to own stocks that offer large margins of safety. We also seek to own stocks with an enduring moat,” writes Stein.
“In the resources space, this means we try to own stocks with long reserve lives that operate low down on the cost curve. We prefer to own stocks with high-quality management teams that have demonstrated sound capital allocation principles relative to their peers.”
Investors should be aware that shares can be volatile investments, and the cyclical demand for commodities can add to the risk of capital loss. The fund is concentrated and only invests in one sector of the market, making it riskier than a general equity fund.
Stein explains that the fund is suitable for investors who are building wealth and want to diversify their investments to include specific exposure to the resource sector; believe that resource shares offer compelling value; accept the cyclical nature of commodity demand and the resulting increased risk of short-term losses; and want to hold the Resources Fund as one of multiple funds in their investment portfolio.
The election of Cyril Ramaphosa has stirred hopes that the sector’s prospects could improve, he writes.
“Indeed, one of president Ramaphosa’s first actions was to replace the mining minster, Mosebenzi Zwane, with Gwede Mantashe.
“In addition, new leadership has been injected into Eskom. Our expectation is that the likelihood of increased policy certainty, a reduction in patronage and politically induced safety stoppages should go a long way to improve the operating environment for our local miners.”
Why finweek would consider adding it:
The fund has a solid track record and has beaten its benchmark over the last three-, five- and 10-year periods, as well as since inception.
It is ranked first in its category since inception and has outperformed its benchmark, the All Share Resources Index, by 4.5% p.a. over that period.
The fund was also the top South African fund to 31 December 2017 on straight performance over three years in the equity resources fund category at this year’s Raging Bull Awards.
This article originally appeared in the 21 June edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.
