Commodity managers warm up to metals as world economy improves – by Claire Milhench (Reuters India – October 10, 2013)

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LONDON, Oct 10 (Reuters) – Base metals are back in favour with commodity managers after a long period in the dog house, reflecting a new enthusiasm for growth-oriented assets as the global economy picks up.

“The key economic regions of the world have either resumed a slight upward trend or have at least put the worst behind them,” said Ronald Wildmann, an adviser to the GFP Long Mining Fund , which returned almost 15 percent in the third quarter. “In China, the hard landing feared by many has not come to pass.”

Commodity prices as indicated by the Thomson Reuters-Jefferies CRB index rose 3 percent in the third quarter, compared with a 6 percent fall in the second quarter.

This turnaround meant the average actively-managed fund in the Lipper Global Commodity sector was up 1.94 percent, compared with a loss of 9.58 percent in the second quarter.

But it was hybrid funds, which invest in natural resource equities and commodity futures, that topped the Lipper league table, as these benefited from a rally in the mining sector.

“Mining stocks outperformed commodities, which is usually the case when the markets rally from the bottom,” said Wildmann.

He attributed the fund’s strong third quarter performance to investments in Rio Tinto, Glencore Xstrata, Teck Resources, Vale and Freeport. “We were overweight in iron ore and copper holdings,” he said.

His favourite picks remain miners in copper and iron ore segments, as well as direct investments in palladium and platinum.

“We are also interested in stocks with a connection to met coal, as we think coal prices have bottomed for the time being,” he said. Metallurgical, or coking coal, is used to make coke for the iron and steel industry.

The bigger hybrid funds also benefited from their stock exposure, such as the $385 million BlackRock Commodities Strategies Fund, which invests about 50/50 in commodity equities and futures and returned 4.81 percent.

Portfolio managers Catherine Raw and Poppy Allonby said the mining sector had been a particularly strong performer for them.

“A pick-up in the Chinese economy led to an increase in industrial commodity prices such as base metals and iron ore, but also improved market sentiment towards the sector,” they said in an e-mailed response to questions.

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