Report Release Date: 4 May 2010
Analyst: Jackie Beard
Morningstar Opinion
This fund is doing what it should--and well.
Evy Hambro has been in charge here since the launch in March 1997, and we like the consistency of approach this brings. Hambro has helped build the natural-resources team into the current cohesive group. They suffered a blow when Dr. Graham Birch, former head of the team, decided not to return from his 12-month sabbatical earlier this year, but they’d coped exceptionally well in his absence, and it’s business as usual. Hambro has been co-head since April last year, alongside Robin Batchelor. They share responsibilities, but Hambro is the natural leader of the mining analysts and Batchelor the energy analysts; they also have two agricultural specialists as part of their group. Birch is clearly a loss as his experience extends back more than 25 years, and the team would like to hire a mining analyst. This isn’t so much about replacing him as adding headcount to help with analysis and marketing.
The combination of marketing and strong performance has seen the fund double in size over the last 12 months. Hambro invests in some of the largest companies, which eases our concern a little over capacity constraints; our data shows us the weight in small caps has consistently been sub-10% since 2003 and, other than a brief spike in early 2003, the mid-cap weight has generally stayed between 10% and 20% of the fund. This shows Hambro isn’t having to adapt his style as the fund grows right now, but it’s something we’re keeping a close eye on.
Hambro’s process acts as a risk control and keeps position size in check relative to, among other factors, liquidity and market cap of a company. He doesn’t speculate on commodity prices; he focuses on their likely direction of movement. It’s a sound process that's been well implemented over a number of market cycles. The results are testament to its success. Since launch, it has produced annualised returns exceeding 16%, nearly 8 percentage points ahead of its category. It isn’t for the fainthearted though, and those who can’t stomach periods of volatility should avoid such niche offerings. 2008 was the worst year in the fund's lifespan, and Hambro lost his investors more than 62%. This highlights the risk associated with specialist sector plays. It wasn’t enough to dent the longterm record; over three and five years to end Mar. 2010, the fund is comfortably ahead of its peers.
There are many factors in its favour, but we do think economies of scale could be passed on to make it cheaper. TER exceeds its category median by 24 bps, and, given the amount of assets in this fund, as well as the firm's size, we think this could be improved. It retains its Elite rating.
*The above returns are in Euro terms.
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