patrick
TRANSCRIPT
14 April 2011
Luxembourg Fund Selectors Forum 2011
www.uram.ch
Patrick PittawayPortfolio Manager, URAM
www.uram.ch The opinions and views expressed here are those held by URAM as at April 2011, which are subject to change and are not to be taken as or construed as investment advice
Overview
2
The outlook for commodities
Strategies for alpha generation Passive strategies (optimised roll returns, index composition, etc…) Active strategies
Equities as an alternative? A case study for gold
The best of both worlds: flexible funds (commodity and equities)
www.uram.ch The opinions and views expressed here are those held by URAM as at April 2011, which are subject to change and are not to be taken as or construed as investment advice
Demand fundamentals
Industrialization of the emerging world is a unique oppportunity
Unprecedented demand from the emerging world
Over 700 million people will eventually move to urban areas India needs to pursue an urbanisation program on a scale similar to China (250m people
by 2030). $600bn has been allocated over the next 5 years
New demand from investors
ETF : Financial innovation opens commodities up to a broad range of investors Loose monetary policies in developed world favour investment in Gold and real assets
Green technologies trigger renewed interest for strategic metals
Mining presents a unique opportunity to benefit from the inflection point in alternative energy technologies
The outlook for commodities
3
www.uram.ch The opinions and views expressed here are those held by URAM as at April 2011, which are subject to change and are not to be taken as or construed as investment advice
Supply constrained
Physical constraints such declining grades and greater depth means greater costs and require increasingly greater sovereign risk
Given the challenges associated with growth, many companies prefer to acquire rather than grow organically
The outlook for commodities (2)
4
www.uram.ch The opinions and views expressed here are those held by URAM as at April 2011, which are subject to change and are not to be taken as or construed as investment advice
5
Strategies for adding alpha
Passive: top four commodity indices Active: commodity selection
www.uram.ch The opinions and views expressed here are those held by URAM as at April 2011, which are subject to change and are not to be taken as or construed as investment advice
Gold mines have never looked so attractive
6
Equities as an alternative
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
Price-to-Forward Earnings: Gold / TSX
Long-term Average
+1 STD
-1 STD
Source: RBC CM Quantitative Research, C.P.M.S.
www.uram.ch The opinions and views expressed here are those held by URAM as at April 2011, which are subject to change and are not to be taken as or construed as investment advice
7
Equities as an alternative (2)
Margins and cash flow at record level
Gold industry cash marginsCummulative free cash flow (2010-2015)
Source : Merill Lynch Source : NBF
www.uram.ch The opinions and views expressed here are those held by URAM as at April 2011, which are subject to change and are not to be taken as or construed as investment advice
Number of mergers/acquisitions in gold sector
8
Equities as an alternative (3)
Price paid and gold price
www.uram.ch The opinions and views expressed here are those held by URAM as at April 2011, which are subject to change and are not to be taken as or construed as investment advice
9
Emerging index
Intermediate
Junior
Commodity
Senior
Source: Bloomberg, Chart URAM
Stock picking adds significant alpha Life cycle of a mining stock (relative value)
Equities as an alternative (4)
Alpha and beta in the gold sector, continued
www.uram.ch The opinions and views expressed here are those held by URAM as at April 2011, which are subject to change and are not to be taken as or construed as investment advice
How to achieve a long-term performance above that of gold?
Understand the arbitrage opportunities between precious metals and the equities of gold mining companies
Benefit from the alpha available from the active management of gold shares
Stock picking is a priority
Where possible, minimise the volatility of gold mines
Without using leverage
10
Best of both worlds
www.uram.ch The opinions and views expressed here are those held by URAM as at April 2011, which are subject to change and are not to be taken as or construed as investment advice
11
“Top down” analysis to determine opportunities and risks
Best of both worlds (2)
Summary
Fundamental approach
Macro-economic environment
Supply & demand fundamentals
Inventories
Technical approach
Trend & momentum
Sentiment
Speculative positions
Quantitative analysis
Valuation
Growth potential
Margins
Relative performance
Qualitative analysis
Management quality
Political risk
Geology
Operating environment
Stock selection