Fund managers make contrarian call on beaten-up miners

Fund managers are starting to buy back into UK-listed large-cap miners, seeing valuations as too good to refuse as wider sentiment on the sector hits a “decade low”.

Typically viewed as a high beta sector, large-cap miners across Europe have moved in the opposite direction to a soaring wider market since the start of 2013.

Slower-than-expected Chinese growth data and talk of the end of the commodities ‘supercycle’ pushed the STOXX Europe 600 Basic Resources index into a bear market last week, with a 21% fall since the start of the year.

Management changes

Similarly, UK-listed miners are among the worst performers in the FTSE 100 year-to-date. But some asset managers and analysts are now expecting a turnaround in the much-maligned sector, seeing the current rock bottom valuations as a good entry point.

Duncan Goodwin, manager of the Martin Currie Global Resources fund, has been significantly underweight miners for years, but is now beginning to raise his position to neutral.

“The top four players in the market – BHP Billiton, Xstrata, Rio Tinto and Anglo American – have all seen changes of top management, which may lead to changes in strategy,” he said.

Chris Murphy, manager of the Aviva Investors UK Equity and UK Equity Income funds, agreed management changes “should herald a long-term shift away from value destructive capex and deals.”

This would result in improved cash returns to shareholders and higher valuations on the shares, he added.

“We hold Rio Tinto for its tier one assets [meaning they achieve a return on capital of over 15%] and believe if mining companies do not focus on their shareholders, there will be ever increasing pressure to change the boards.”


Data compiled for Investment Week by Morningstar shows just how out of favour mining giants are among IMA UK All Companies funds.

As of the end of February 2012, the average fund held 7.2% in industrial metals and minerals companies, compared with over 8% in the benchmark FTSE 100 and FTSE All Share indices. By February of this year, that percentage had fallen even further, to just 5.84%.

But some managers are beginning to build up their positions: Bill Mott, manager of the PSigma Income fund, remains underweight miners but has been buying BHP Billiton and Rio Tinto on price weakness, adding to both holdings in recent weeks.

“We are encouraged by recent statements by both companies that suggest a higher degree of capital discipline,” he said.

This article continues…

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