Has This New Fund Missed The Mining Boom?

Published in Investing on 25 January 2011

JPM launches a new mining fund, but the sector has already boomed.

Now here's a good, simple idea. Okay, so it's two years late, but it's still a good idea. The JPM Global Mining Fund. As its name plainly suggests, this fund will invest in mining companies.

Not commodities. Not natural resources. Not gold and general. But mining.

JPM Global Mining Fund will invest in mining and mining-related stocks anywhere in the world. That's what it does.

It will target between 50 and 100 companies, from small to large cap. These companies will all have one thing in common. They will be involved in mining.

Got that?

Dig deep for the miners

My own portfolio is thin on miners, I've held no direct mining stocks since selling out of Rio Tinto (LSE: RIO), although I have plenty of exposure through my iShares FTSE 100 ETF (LSE: ISF). So I'm tempted.

JP Morgan has a pretty good track record in this area. The £2.5 billion unit trust JPM Natural Resources is the daddy of natural resources unit trusts. This fund also has a hefty share of miners, including Rio Tinto, Xstrata (LSE: XTA), Anglo American (LSE: AAL) and BHP Billiton (LSE: BLT), but invests across other commodities, including energy and agriculture.

Performance has been good. It has delivered a golden 40% over the past 12 months, on the back of the commodities boom, and 110% over five years. It is first quartile in its sector over one and three years, ranking 6th out of 98 funds.

JPM Global Natural Resources has also done pretty well, but then, it holds many of the same stocks. And is run by the same man, Ian Henderson (and his team).

Mine of information

JPM Global Mining launches on 1 February, and will be managed by Neil Gregson, who joined the company last year from CQS Asset Management and has 20 years of experience in natural resources.

Using my uncanny powers of hindsight, I started this article by noting that this fund has launched two years too late. During that time, mining stocks have soared, measured from their March 2009 lows.

Rio Tinto has spiralled from around £10 in the depths of the credit crunch to £43 today. Anglo American is up from £10 to around £31. Vedanta Resources (LSE: VED) is up from £5 to nearly £24.

JPM Global Mining is coming late to the party. Very late. Most miners have now recovered pretty much all of their losses from the crunch. The question now is whether they can beat their pre-crash highs.

Shining mining

Neil Gregson is confident miners can gouge out further profits and claims both base and precious metals will remain one of the most compelling investment opportunities in 2011 and beyond. "We will focus on companies that can achieve growth of reserves and production, while at the same time identifying undervalued mining assets. This is a continuation of the existing philosophy and proven stock selection process."

It will be interesting to see which mining stocks Gregson focuses on after the fund is launched, and how much they will differ from the two existing JPM funds.

For many investors, the distinction between natural resources and mining will be a fine one. What happens to commodity prices generally will drive performance.

Black gold

There are other mining funds to choose from. I recently put the £1.6 billion BlackRock World Mining Trust (LSE: BRWM) on my watchlist, and to me it has the edge over the JPM launch for one reason: it is an investment trust.

I like investment trusts. They typically have lower charges than unit trusts. BlackRock World Mining has no initial charge and an annual management fee of 1.3%, while JPM Global Mining charges an initial 4.25% and 1.5% annually, although you should be able to get around that initial charge by purchasing through a discount broker.

Solid as a Rock

Investment trusts tend to outperform when markets are rising, and although they may also lurch downwards faster, that matters less if you are holding on for the long term.

BlackRock World Mining Trust is also trading at a glittering discount of 13.6%, despite delivering a rich seam of returns. It is up 44% over one year and 115% over five years.

These are remarkably similar returns to JPM Natural Resources (40% and 110%), which suggests performance of mining funds largely rests on market trends rather than the individual genius of the fund manager.

Waiting for the next correction

Charges aside, I suspect there isn't that much to choose between the two funds. An investment trust discount is only of any use if it closes by the time you sell, but some investors may see that as an extra temptation.

If you prefer exchange traded funds, ETF Securities offers the ETFX DAXglobal Global Coal Mining and Global Gold Mining funds, but these are clearly more specialist.

You may have other suggestions.

Right now, I wish I had a dedicated mining fund in my portfolio. I only wish I'd bought it two years ago.

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dansnr 26 Jan 2011 , 5:32pm

Better late than never! - I think there is still quite a bit of upside in this sector despite the recent dip and I wish the new fund well.

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