Commentary - JP Morgan Asset Management

JPM Natural Resources Fund
Monthly update | As at 31 May 2015
Fund update
• The fund produced a negative return in May and performed in line with its comparator.
• The fund’s negative absolute performance was primarily due to its high weighting in base metal
producers, in particular copper producers such as Freeport McMoran, Capstone Mining and First
Quantum Minerals, which fell along with the copper price on the back of a strengthening dollar.
• Our energy stocks also contributed negatively to returns on an absolute basis. The biggest
detractor within our energy holdings was DNO, the Kurdistan oil & gas producer, which fell due to lower-than-expected first-quarter domestic sales, putting pressure on short-term cash flows.
• Our gold equities generated a positive return, although being underweight gold vs. our
comparator was a drag on relative returns. Our top-performing gold stock was OceanaGold,
whose recent acquisition of the Waihi gold mine and strategic stake in Gold Standard Ventures
was well received by the market.
• Staying within the precious theme, our holding in Petra Diamonds was up strongly on signs of
stabilisation in the diamonds market and additional clarity on the use of the money raised in the USD 300 million bond issue in April.
• Our largest holding in the mineral sands sector, Sierra Rutile, was a large contributor to fund
returns after giving the low-capex, low-operating-cost Gangama project the green light.
JPM Natural Resources Fund A – Net (acc) GBP
Euromoney Global Gold, Mining and Energy
Index (Net)
Excess return (geometric)
Source: J.P. Morgan Asset Management. Fund performance is shown based on the NAV of the sub-fund which already includes
Annual Management Fees, Operating and Administrative Expenses. Past performance is not an indication of future performance.
Performance over 1 year is annualised. Share class inception date is 1 June 1965.
Rayner Spencer Mills rating as at April 2015. Copyright - © 2014 Morningstar, Inc. All Rights Reserved. Morningstar Rating™ as at
April 2015, in the Natural Resources Equity category™.
The fund’s negative absolute performance
was primarily due to its high weighting
in base metal producers, in particular
copper producers such as Freeport
• The value of Equity and Equity-Linked Securities
may fluctuate in response to the performance of
individual companies and general market conditions.
• Emerging Markets may be subject to increased political,
regulatory and economic instability, less developed
custody and settlement practices, poor transparency
and greater financial risks. Emerging Market currencies
may be subject to volatile price movements. Emerging
Market securities may also be subject to higher
volatility and be more difficult to sell than nonEmerging Market securities.
• The fund invests in securities of smaller companies
which may be more difficult to sell, more volatile
and tend to carry greater financial risk than
securities of larger companies.
• The fund will be concentrated in natural resources
companies and may be concentrated in one or more
countries. As a result, the fund may be more volatile
than more broadly diversified funds.
• The value of companies in which the fund invests
may be influenced by movements in commodity
prices which can be very volatile.
• This fund is aggressively managed, which may result
in higher volatility of the fund’s performance and
bigger differences between the performance of the
fund and its benchmark.
To invest, primarily in the shares of,
companies throughout the world engaged in
the production and marketing of commodities.
The fund aims to provide capital growth over
the long term.
JPM Natural Resources Fund
Outlook and positioning review
• We continue to believe that the sector is bottoming out and is poised
for a recovery. The most compelling indication is the significant pick-up
in M&A activity so far this year.
• We retain a preference for base metals over bulk commodities, based
on their more attractive supply fundamentals. The oil market remains
oversupplied in the short-term as evidenced by the continued increase
in OECD inventories. However, the route to a more balanced market
has become a little clearer with the continued falls in the US rig
count in response to lower prices and the upgrade to 2015 demand
projections by both OPEC and the IEA.
• We still believe in USD 90 oil over the long term, but remain invested
in those companies that can weather lower prices in the short to
medium term because of the quality of their asset base.
• We remain cautious about the outlook for the gold price based on
the trajectory of US monetary policy, and recent volatility has done
nothing to dislodge this view. This subsector of the portfolio is skewed
towards higher-quality, lower-cost producers that can weather any
further declines in the gold price.
For more information contact your usual J.P. Morgan Asset Management
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additional information and do not necessarily reflect the views of J.P.Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless
otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may
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