by Niko Kloeten
Ric Ronge, head of global resources at Australian fund manager Pengana Capital, is in New Zealand this week presenting to investors and financial advisers about the outlook for the sector.
He said stocks in the sector were currently under-valued based on commodity prices, because investors were deserting the sector.
“In the post-Global Financial Crisis world we’ve seen investors really seek income assets in preference to growth assets, so much so that in over the past two and a half years we’ve seen a marked performance differential between the two,” he said.
“We’re starting to see some commentaries noticing this and calling it the great rotation.”
Ronge says one factor that will make the rotation ‘’great’’ is the sheer size of the resources sector, which as an asset class makes up almost a quarter (24%) of the global equity market.
But although a reversion to mean would be good for investors in the sector, Ronge said commodity price increases were expected to be muted overall.
He said this was quite different to the explosive growth in commodity prices investors had grown accustomed to in recent years, but the situation was normal and the previous boom was abnormal.
“A large portion of the market got used to something that wasn’t sustainable. The market has reverted to be but the sector has been in purgatory because of something that was atypical. Corporates splurged a lot of cash on something that destroyed value.”
Ronge said the state of the market makes active management important, because passive investments such as ETFs and index funds are unlikely to see big gains.
“When everything was flying it was easy and a passive manager might have done quite well.”
In terms of specific commodities, Ronge said the high price of iron ore was “worrying”, when compared to the low price of steel.
Energy “continues to look very good”, while the price of gold is supported at current price levels, he said.
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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