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Three funds set to benefit from a commodities supercycle

Goldman Sachs believes the economy is at “the beginning of a structural bull market for commodities”. The New York-based investment bank has even drawn comparisons to the 2000s copper boom when the price of copper quadrupled in line with increased demand in emerging markets, particularly China. 

With copper being one of the commodities tipped to lead the commodities supercycle, the selection of funds detailed provides a significant exposure to copper whilst ensuring a diversified approach in the natural resource sector. 

There is also attention paid to recent comments from Shell that their own oil production has peaked which could see fossil fuel prices rise if other oil majors follow suit.

Below are three commodities funds which could stand to gain from a supercycle. There is a mix of passive and actively managed funds along with selections providing attractive yields.

JPM Natural Resources Fund

The JPM (JP Morgan) Natural Resources Fund’s holdings are well diversified across the commodities sector, as well as having a broad geographical distribution. 

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The biggest exposure is in integrated oil and gas, with a weighting of 21.5%, which is actually 3.9% lower than the benchmark EMiX Global Mining and Energy Index. 

The fund is heavily overweight base metals compared to the benchmark with a weighting of 14.6%. This means the fund provides investors with a substantial holding in copper when compared to other diversified resource indices. 

Rio Tinto, is the top holding with a 6.3% weighting, while BHP, Chevron and Freeport-McMoRan make up 5.2%, 5% and 4.6% respectively. 

The fund’s dividend is paid annually and has a historic yield of 2.9%. The fund’s most recent and first dividend, of 19.14p, was paid on 30 April 2020.   

There is an ongoing charge for this fund of 0.82%. This includes the fund manager’s annual charge, as well as other expenses, but does not include transaction costs.

CQS Natural Resources Growth and Income (LON:CYN)

The CQS Natural Resources Growth and Income investment trust aims to provide capital growth and income from a portfolio of mining and resource equities, and fixed interest securities. 

A total of 18 sectors are represented by the trust, most of all gold and copper at 20.9% and 18.5% a piece. Shipping (9.6%) and fixed interest securities (7.8%) are third and fourth. Other sectors well represented by the investment trust are base metals, silver, uranium, and oil and gas.

The fund is equally well diversified by company, with 124 separate issues. First Quantum Minerals, which makes 80% of its revenue from copper, makes up 10.1% of the value of the fund. West Africa Holdings, Rea Holdings and Talon Metals make up the top four

The trust is trading at a discount to NAV of -11.72%, while its estimated NAV per share is at 152.93. Additionally, over the last 12 months the fund’s share price has risen by over 60p, an increase of 72.3%. 

The fund’s most recent dividend (1.26p) was an interim payment made on 30 November 2020. For the last seven years, annual dividend payments have remained fixed at 5.6p. The dividend is paid quarterly at a yield of 4.03%. 

The fund charges a 1.2% annual management fee.

Invesco Bloomberg Commodity UCITS ETF (LON:CMOP)

The Invesco Bloomberg Commodity UCITS ETF is a passive fund ETF which tracks the Bloomberg Commodity Index. Without targeting specific commodities through an actively managed approach, the fund will benefit from a rise of commodities universe.

The index dropped to 1008.25p per share in April 2020, but has recovered well, climbing up to 1285p per share in February 2021.

Due to its passive style of investing, the ETF has a management fee of 0.19%, which is considerably lower than the aforementioned funds.

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