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Revitalized Natural Resources Funds

Escalated tension between the US and Iraq and labour strike in Venezula pushed prices of gold and oil up to new heights....

Morningstar Analysts 03 January, 2003 | 0:00
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Escalated tension between the US and Iraq and labour strike in Venezula pushed prices of gold and oil up to new heights unseen for years. In 2002, while gold price rose above USD300 per oz, oil price cost more than USD30 per barrel and the price of natural gas doubled. Many funds that invest primarily in firms exploring these natural resources, as a result, recovered much of their losses in 2002. In particular, gold and precious metals funds outstripped all equity peers to deliver glittering returns. Nevertheless, only 6 out of the 10 natural resources funds managed to attain positive growth (see table below).

MLIIF World Gold fund gained 100% in 2002, topping the performance chart of all funds in the Hong Kong universe. Its focus on gold mining companies that had not hedged for gold price fluctuations was the key driver for portfolio returns; industry consolidation also benefited the performance of some of its holdings. Due to the capital-intensive nature of the exploration projects, fund manager Evy Hambro emphasizes on a firm's cashflow position in his stock selection. While neither Hambro nor any of the fund's holdings hedged for gold price changes, Hambro typically tempers portfolio risks by investing in firms that explore other natural resources and spreading assets in many countries to minimize political risks.

The MLIIF World Mining fund that Hambro co-manages had gained, as Management also stressed on the gold theme in 2002. Investments in platinum and diamond subsectors also contributed with high double-digit calendar year gains.

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