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An equity fund that outperformed almost all its African and Middle East peers this year has stepped up bets on companies poised to benefit from Europe’s energy crisis.
The Coronation Resources Fund, run by one of South Africa’s largest money managers, has returned 20% in 2022, beating all but one of 440 funds in the region tracked by Bloomberg. The gains compare with a 16% slump in the S&P 500 Index, and an even steeper drop in emerging-market stocks.
Surging prices of coal and other commodities after Russia invaded Ukraine boosted shares in Glencore and South African miner Exxaro Resources, among key holdings for the fund. Cape Town-based Coronation Fund Managers oversees about R574 billion in assets.
In the last quarter, co-managers Nicholas Stein and Nicholas Hops bought shares in oil and gas producers EOG Resources and Woodside Energy. Stein and Hops have a "very positive" view on global liquefied natural gas markets in the next five years as Europe "scrambles to meet its energy needs", they wrote in a recent commentary.
"The world has been very aggressive in trying to cancel energy supply without really canceling energy demand," Stein said in a separate interview last week. "Energy transitions happen over decades," with heavy industry reliant on coal, oil and gas. "It’s not easy to switch it off very quickly." Add to that an under-investment in the supply base and "demand is stickier than one thinks," he said.
Here are some other views from Stein on the outlook for resources:
- Bullish on oil versus coal: "Coal at current prices is feeling non-sustainable, whereas oil at $90 we think actually looks very attractive." If the economy gets a "lick" of growth from a boost like China reopening, "I think oil could go very high."
- Iron ore: "We expect iron ore demand to be fairly muted at a time when you’ve seen reasonable supply. We would also expect reasonable supply of scrap in the coming years."
- Underweight gold: "We’ve been really surprised by the aggressiveness of central banks in dealing with inflation.” The outlook for demand is “pretty muted."
- Neutral on platinum group metals: "You could see a pretty good pricing environment, say the next five years. It’s after years where we start getting a little nervous, where electric vehicles really start to ramp and what that means for demand for combustion engines."
- Positive on electric-vehicle battery metals.