"We are a full UCITs III vehicle and so we take advantage of using short positions in equities and ETCs [exchange traded commodities]," he said.
"This has enabled us to give the portfolio some protection from downside risks and handle the volatility that comes with investing in commodities."
"Though it is not an absolute return fund, we aim to protect our investors from down-periods in the market. We did very well at the end of 2008 when the market took a tumble, for example."
George, a Trustnet Alpha Manager, acknowledges that the fund’s use of shorting means it tends to underperform when the market rises sharply, but he says this is a sacrifice he is willing to take.
He commented: "We believe in the long-term commodities story, but having said that, supply in certain markets is beginning to catch up. Commodities are correlated over long periods, but individual prices are falling at different times."
"When you are investing in something so cyclical and volatile, we think giving the portfolio some protection is the best way to invest in the market."
Investec Enhanced Natural Resources celebrates its third anniversary this month; an important milestone for new funds as most IFAs will only consider recommending products with a three-year track record.
The fund is the fourth-best performing product of its kind over this period, with returns of 33.59 per cent.
Performance of funds over 3-yrs
| Name | 3-yr return (%) |
| Smith & Williamson Global Gold & Resources | 104.76 |
| BlackRock Gold & General | 49.81 |
| Investec Global Dynamic Resources | 46.59 |
| Investec Enhanced Natural Resources | 33.59 |
| Thesis Australian Natural Resources |
31.14 |
| JPM Natural Resources |
30.27 |
| First State Global Resources | 23.75 |
| Investec Global Energy |
16.32 |
| Schroder ISF Global Energy |
9.23 |
| BlackRock World Energy |
6.87 |
| BlackRock World Mining | -1.04 |
| Baring Global Resources |
-17.48 |
| BlackRock New Energy |
-32.44 |
Source: Financial Express Analytics
Two of the three funds that outperformed George's – Smith & Williamson Global Gold & Resources and BlackRock Gold & General – invest predominantly in gold, which has had an excellent run in the last three years. George also manages the Investec Global Dynamic Resources fund.
Investec Enhanced Natural Resources is the least volatile fund of its kind by some distance. The average fund in the table above has a volatility of 21.8 per cent over the last 12 months; Investec Enhanced Natural Resources has a volatility of just 9.88 per cent over this period.
Performance of fund vs sector average over 3-yrs
Source: Financial Express Analytics
George has increased his exposure to energy and energy stocks recently, particularly natural gas, and believes the run on precious metals still has some way to go.
"Last year was not the time to be in energy, but we have begun increasing our exposure this year. Indeed, one of my biggest regrets of 2011 is that we didn’t start increasing sooner as it has done very well of late," he said.
"I see more upside in the energy sector overall. I like US natural gas particularly – prices will have to rise as production from drilling has come off."
"There’s been more of a focus on natural gas after the nuclear crisis as an alternative energy source. A lot of the big companies are buying into it at the moment."
The fund has more than 10 per cent of its portfolio exposed to natural gas, which is twice as much as the benchmark weighting.
"We also have a relatively strong weighting to precious metals relative to the benchmark, particularly gold and gold equities, platinum and palladium," George added. "We don’t think prices will fall anytime soon, and they could go higher still."
"As long as the price doesn’t fall, we think gold equities can outperform. However, you have to be very selective. Gold equities have underperformed recently, but there has been a massive range in performance between individual stocks."
The manager has become more cautious on base metals after maintaining a strong position throughout 2010. George is currently shorting nickel and zinc, though he is more optimistic on the prospects for copper.
"We got out of copper last year, but since prices have fallen back a bit, we’ve begun adding again recently. There will certainly be volatility in the price, but I anticipate more disruption from the corporate miners this year," he finished.