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PORTFOLIO UPDATE – Global Resources
April 2012

ommodities and natural resource equity investments declined in April. The Dow Jones-UBS Commodity Index lost 0.4%; commodity equities had greater losses.

Global growth concerns have been weighing on commodity stocks, especially impacting base metals and steel companies. The Chinese economy is slowing, consistent with the government’s policies for more sustained growth. US employment and economic data have weakened from the strong pace reported earlier this year. Europe appears to be on the cusp of recession and entering a period of unsettled politics.

Despite the economic gloom and its impact on natural resource equities, commodity prices have been relatively stable. The indices were down slightly, but many commodities were up. Oil prices rose, despite a reduction in the political tensions with Iran. Natural gas prices increased during the month, though they are still off record lows. Copper also gained even as the Chinese economy slowed.

Steel, coal and iron ore, the three major commodities without liquid futures contracts, had stable prices. Despite China’s reduced growth rate, its demand for steel appears to be growing faster than expectations. Steel stocks have underperformed other commodity sectors, and the Portfolio has benefited by not owning these companies. However, valuations have now become compelling. We have added a 1% steel allocation that may increase over time, depending on the strength of the global economy.

Of the major commodities, only gold was down (0.2%). Gold (and silver) equities have not participated in the rally in precious metals prices. It is estimated that, in aggregate, gold companies are pricing gold at $700/oz. vs. its $1,600/oz. spot price. The ratio between gold prices and gold stocks is at or near historic lows. Precious metals comprised 11.4% of the Portfolio at the end of April.

The biggest contributors to performance in April were:

  • Base metals mining companies (including copper)
  • Steel input companies (including iron ore and metallurgical coal)

The biggest detractors to performance were:

  • Gold mining companies
  • Energy related engineering and construction companies
 
 

Any opinions expressed are subject to change without notice, and any statements of fact have been obtained from, or are based on, sources considered reliable, but no representation is made by Newgate as to their completeness or accuracy. There is no assurance that estimates/forecasts will be realized. The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specifi c investment. This material does not constitute investment advice and should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or to adopt any investment strategy. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results. To the extent the investments depicted herein represent international securities, you should be aware that there may be additional risks associated with international investing involving foreign economic, political, monetary and/or legal factors. International investing may not be for everyone. These risks may be magnified in emerging markets. © 2012 Newgate Capital Management LLC Full Disclosure>>
 
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