Even the new manager of Price's venerable old Natural Resources fund (PRNEX) is bearish on commodities. The fund - which I used to own, but don't now - is on my radar screen because of its low .66% ER. I was able to read the M* article when it came up on a Google search. However, the link I copied below won't work here. (Guess you need to subscribe to a trial of M*'s premium service.).
Here's the recap in my own words:
T Rowe Price analyst Shawn Driscoll replaced former fund manager Tim Parker last September (2013) as lead manager of New Era. PRENX is one of Price's oldest and largest funds (about 5 BIL). Its goal is to outperform more diversified equity investments during periods of rising inflation through concentrated investments in the natural resource sector. It is heavily invested in integrated petroleum and exploration and development. The ER at .66% is better than most peers. By contrast, PRAFX, Price's Real Assets Fund, carries a .80% ER.
While Parker maintained significant exposure to commodities, Driscoll has shifted the fund's focus more to producers, as he's bearish on commodities. Driscoll's more cautious approach - according to the article - is similar to long-time fund manager Charles Ober who retired more than a decade ago. Two of Driscoll's top holdings are: Quanta Services PWR and Jacobs Engineering JEC (pipeline and LNG terminal construction).
I rarely look at M* and this non-working link won't endear me to them. Lipper likes the fund, rating it "4" in performance and "5" for fees. Max Funds rates it "Excellent" (84%) which is better than their rating for its sister fund PRAFX. Fund Mojo is reserving judgement due to the manager change - but their comments are generally favorable.
http://analysisreport.morningstar.com/fund/research?t=PRNEX®ion=usa&culture=en-US&productCode=MLE
Above link from following article -
Author: Kevin McDivitt, CFA (M* Analyst)
Date 7/11/14
Title: "This Fund is Putting a New Twist on Its Old Formulas"
Comments
http://m.asia.wsj.com/articles/an-australian-boom-town-feels-chill-of-commodity-price-decline-1402281061?mobile=y
http://m.asia.wsj.com/articles/chinas-global-mining-play-is-failing-to-pan-out-1410402598?ref=/home-page
In commodity bull markets you hear things like:
- Population's growing. People need to eat
- Resources are limited.
- Paper currencies always depreciate.
However, We continue to discover new energy sources and are taking the weight out of everything reducing metal needed and energy consumed. Technology is revolutionizing agriculture. Farmer really needn't walk through his fields anymore. View the bumper corn crop from his easy chair via autonomous drone - which I've read can also go back and apply insecticides where needed
Slumping prices probably have a lot to do with Dollar strength on global markets, speculation about future Fed moves and, perhaps, some type of approaching global slowdown.
If you do invest in oil, I'd say stick with biggest/best rather than speculative smaller players.
Solar is real, but I think much like 2008, if oil turns down, people will forget about it. There's absolutely no long-term plan in this country in regards to energy (or much of anything for that matter...) - none.
I'll agree that the current move down in commodities is heavily dollar-related, although at the same time, you have the IEA saying this: "The recent slowdown in demand growth is nothing short of remarkable,” the IEA said. “While demand growth is still expected to gain momentum, the expected pace of recovery is now looking somewhat more subdued.” (http://www.bloomberg.com/news/2014-09-11/iea-cuts-oil-demand-estimates-as-saudi-exports-drop-to-2011-low.html) You also have mortgage apps at a 14 year low. Things aren't great in a lot of regards.
I still like ag as a long-term holding.
I guess if anything I continue to like "needs" (whether it be healthcare, infrastructure, energy, etc) more than "wants" (although I have some investments in the latter.)
I'm tempted to add a bit to these sickly vehicles. Just not sure want to go there! Gets into the "falling knife" syndrome.
Companies like Rio Tinto (RIO) or BHP Billeton (BHP) pay an solid 4ish% dividend.
I do think of the commodities sector as an inflation hedge, but I think you have to be diversified and have a long-term view. I would favor energy as an inflation hedge more than basic materials, but it's good to be diversified.
I like anything that resembles a toll road - railroads, pipelines, credit card networks, etc. Especially like railroads - you have a handful of companies who have a lock on moving grain, energy and many other things for the foreseeable future. Railroads are one thing where I can sit and say, "what replaces this in the mid and probably long term?" The answer is nothing I can think of at this point.
"strong companies that control metal deposits are a good place to be. Strong means with manageable debt they can survive and enough commodity to use as currency, if necessary."
"This is not overcapacity, it is misallocated usage by China. They have cut there own throats and worse they created a shadow banking system based on that crummy Chinese ore, causing prices over the last four years to skyrocket. But that has no bearing on the real price of ore, the long term price of ore which has been commodity equivalent of 80 a ton for sixty years. The actual prices paid were lower but in comparison to buying power and other commodities, 80 is an agreeably number."
"The point is VALE and company are priced to BUY...not sell. They have spent gazillions of dollars improving their efficiency and are RAISING [not lowering] production to squeeze out higher cost producers. I personally like VALE for my own reasons, am long, am down and will continue to buy more...likely here. Vale's big advantages are it's ore which is high in quality and low in impurities such as alumina. The low levels of alumina necessitate LESS coke consumption by blast furnaces thus raising productivity. So while one can make the very valid argument that BHP and RIO have closer proximity to Asian customers, which is true, VALE has better quality ore. VALE has also built a massive logistics and energy infrastructure around their ore systems to increase reliability and lower costs and to the one poster who said or hinted that BHP is getting into the energy business...I'm not exactly sure that's the right way to look at it. VALE and BHP are massive companies and the energy and infrastructure businesses they run are really there to lower the costs of delivering their iron ore products. One company that I would say is probably moving MORE towards energy is Canadian Metals Producer Sherritt International. "
Q3: "In mid-August, we expect to close on our investment in VLI, a Brazilian rail and port business, as we have satisfied all consents required for closing this transaction. This investment will provide us with approximately $300 million of organic growth projects, as the business has a substantial capital program to expand operations."
I'd rather own that than Vale, but otherwise, BHP is something that I've thought about a whole lot but continue to stick with Glencore due to Glencore's diversity, legendary trading operation and exemplary assets.
Apparently no link available at this time.
"Economic trends and the company's continued commitment to leveraging high-growth opportunities underpin confidence in its ability to return to generating double-digit earnings growth and margin expansion beginning in 2015. Longer term, the company continues to target an operating ratio in the mid-60s, and will continue generating shareholder value by maintaining its focus on inflation-plus pricing, continually improving efficiency across the business, and capitalizing on economic trends."