George (pictured) says that while his £206.2m Investec Enhanced Natural Resources portfolio may miss out on sharp rallies, the feeling of security he offers investors in this sector more than makes up for this. "What we’re trying to do with a long-short fund is have a fund that maybe doesn’t quite capture the highs but then certainly doesn’t collapse in the lows, so you have a smoother trajectory through this longer-term cycle," he commented.
"Yes, there’s a great opportunity, but guess what, things don’t always go in a straight line and in a more cyclical-natured commodity it goes up and down, so we as investment professionals have got to try to capture 70 to 80 per cent of that upside."
"We’re not going to capture all of it, but we certainly don’t want our investors to have a nosebleed and go on that roller-coaster ride down."
"The shorts would then kick in and the fund tends to have a shallower dip down."
"Given the divergence of performance in commodities, we think there are opportunities on both the positive and negative sides so a long-short fund is actually a way to kind of play the sector."
However, the four crown-rated fund has not only outperformed its benchmark, the MSCI ACW Materials index, since launch, it has also consistently beaten comparable resources funds over the period.
Since May 2008, it has delivered 13 per cent, while each fund in the comparative peer group has delivered negative returns over the same period. The benchmark also lost 3.52 per cent.
Performance of fund since launch vs peers and benchmark
Source: FE Analytics
It has delivered these returns with the lowest volatility of comparable funds, achieving not only the highest Sharpe ratio of the four previously mentioned portfolios, but also a top-quartile Sharpe ratio in the IMA Specialist sector, at 11.71.
The Sharpe ratio calculates the level of a fund’s return above that of a notional risk-free investment – in this case, cash. The difference in returns is then divided by the fund’s standard deviation.
It has also returned the highest level of Alpha, or value over and above the momentum of the assets in the portfolio, over the period, at 1.74.
"It leads to lower volatility because the sector can be quite volatile. You can make a lot of money on the short side if there is not enough supply to meet demand," George said.
"We do believe we are in a commodities supercyle. What we mean by that is demand for commodities, not necessarily prices, is going to be above historical averages."
Urbanisation and industrialisation in emerging economies and reconstruction and rebuilding in western economies are driving the increasing demand for commodities, according to George.
He adds that prices may not necessarily rise as long as there is enough supply in commodities to meet the demand.
The manager cites copper as an example of a commodity that will appreciate in price, while natural gas, due to innovation in the industry, is in excessive supply and will therefore fall in price. George says the fund currently has no exposure to Columbia, Venezuela or Angola due to extreme geopolitical risks in those areas.
The fund has a minimum investment of £1,000 and an annual management charge of 1.5 per cent. It has a TER of 1.68 per cent, in line with comparable funds.