Fund of the week: how to mine the commodities seam
The Merrill Lynch World Mining Trust has seen its share price rise by more than 530% over the last five years on the back of the boom in global commodities. And despite being in a “pessimistic” phase of the cycle, says fund manager Evy Hambro, miners will continue to trump expectations over the next few years. After all, “analysts have been too pessimistic for six years in a row”, he tells the FT.
For a start, the mining sector will continue to benefit from merger and acquisition (M&A) activity, says Hambro, because it is still far cheaper to pick up other miners than to expand production capacity. The appetite for buyouts in the sector has already resulted in more than $200bn of M&A transactions since 2005, and the rising cost of borrowing shouldn’t stifle this activity. The sector will also benefit from the degree of diversification that miners have undertaken as companies are no longer as exposed to movements in the price of single commodities as in the past, notes Hambro. In fact, diversified miners make up more than 47% of the fund’s holdings.
Hambro is particularly bullish about the prospect for gold. He sees prices continuing to rise above current record levels as gold production decreases, central banks build their reserves and emerging markets demand more of the metal for jewellery and manufacturing. Gold miners make up 5.5% of the fund. The fund has already returned 54% this year against a 24% sector average.
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Merrill Lynch World Mining Trust top ten holdings
Name of holding, % of assets
CVRD, 10.2
BHP Billiton, 8.4
Rio Tinto, 8.0
Anglo American, 5.0
Impala, 4.6
Norilsk Nickel, 4.0
Xstrata, 3.5
Teck Cominco, 3.4
Alcoa, 3.1
Alcan, 2.9
