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October 2014

The Global Resources Fund lost 8.10 percent in October, following a difficult month for commodities and natural resource stocks. The fund lagged its benchmark, the S&P Global Natural Resources Index, by 489 basis points. The prices for Brent and WTI crude oil fell 9 and 17 percent, respectively, as concerns over excess global supply from U.S. shale, along with OPEC in action, weighed on market prices.  See complete fund performance here.

Strengths

  • The fund’s weighting and stock selection in precious metals outperformed the benchmark in a declining market price for gold and silver bullion.  Klondex Mines Ltd. and an option position in Agnico Eagle Mines Ltd. positively contributed to returns.
  • Oil & gas refining and marketing stocks outperformed in October following better-than-expected earnings reports. This performance continues to highlight strong free-cash flow generation and future master limited partnership (MLP) optionality.  Valero Energy, Tesoro Corp., Marathon Petroleum and Western Refining Inc. all generated positive returns during the month.
  • Individual option positions purchased during the period positively impacted performance in October.  Call options on the XLE SPDR Energy ETF and U.S. Steel Corp. contributed 55 and 21 basis points to fund performance.

Weaknesses

  • The fund’s oil and gas portfolio contributed the most during the oil price decline. TransGlobe Energy, SM Energy and BNK Petroleum were material, negative short-term contributors.
  • The fund’s weighting in junior natural resource companies generally underperformed larger stocks due to the market’s preference for liquidity and lower volatility.  The S&P/TSX Venture Index underperformed the large-cap weighted S&P Global Natural Resources Index by 1200 basis points.
  • The oil service and equipment portfolio within the fund lagged the benchmark as investors became concerned over weak commodity prices and the resulting impact on the oil rig count as well as fracking activity levels.  Accordingly, onshore pressure pumpers like Halliburton Co., frack sand suppliers like Emerge Energy Services and land drilling companies such as Patterson-UTI Energy and CanElson Drilling were impacted the most in advance of second-quarter earnings and a strong first half of the year. 

Opportunities

  • Codelco, a Santiago-based copper producer, is looking to invest $24 billion over the next four to five years in order to increase annual output to roughly 2.5 million tonnes by 2025. The company plans to sell roughly $8 billion of bonds over the next five years to help finance the program.
  • Investments in oil funds are on the rise as investors prepare for a rebound in global energy stocks. The four largest oil ETFs in the United States received a combined $334 million this month through October 20. Shares outstanding in the funds are now at a nine-month high.
  • Japanese banks are lending roughly $3.8 billion toward a natural gas liquefaction and LNG loading facility near Freeport, Texas. The news comes as an optimistic sign of expansion in the energy market, despite the recent downturn.

Threats

  • The number one threat facing commodities continues to be a strong U.S. dollar, which has appreciated more than 9 percent since the start of July. Given the severity of the dollar’s almost unchecked recent rise, the odds of a near-term pause or consolidation have likely increased.
  • Despite positive economic data from the United States, markets remain worried about growth in Europe and China. Any real or perceived threat to global growth, regardless of a strengthening U.S. economy, remains a threat to commodities, especially the industrial metals. 

Past performance does not guarantee future results.

The S&P Global Natural Resources Index includes 90 of the largest publicly-traded companies in natural resources and commodities businesses that meet specific investability requirements, offering investors diversified, liquid and investable equity exposure across 3 primary commodity-related sectors: Agribusiness, Energy, and Metals & Mining. The S&P/TSX Venture Composite Index is a broad market indicator for the Canadian venture capital market. The index is market capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used to remove companies that comprise less than 0.05% of the weight of the index, and add companies whose weight, when included, will be greater than 0.05% of the index.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Global Resources Fund as a percentage of net assets as of 09/30/2014: Agnico Eagle Mines Ltd. 1.53%, BNK Petroleum Inc. 0.59%, CanElson Drilling Inc. 1.29%, Codelco 0.00%, Emerge Energy Services LP 1.44%, Halliburton Co. 2.19%, Klondex Mines Ltd. 1.22%, Marathon Petroleum Corp 1.79%, Patterson-UTI Energy Inc. 1.47%, SM Energy Co 1.00%, Tesoro Corp 1.16%, TransGlobe Energy Corp 1.48%, United States Steel Corp 0.95%, Valero Energy Corp 2.01%, Western Refining Inc. 1.24%, XLE SPDR ETF 0.00%.

Net Asset Value
as of 12/18/2014

Global Resources Fund PSPFX $6.77 0.06 Gold and Precious Metals Fund USERX $5.18 0.21 World Precious Minerals Fund UNWPX $4.68 0.19 China Region Fund USCOX $8.03 0.07 Emerging Europe Fund EUROX $6.87 0.11 All American Equity Fund GBTFX $32.90 0.68 Holmes Macro Trends Fund MEGAX $22.86 0.51 Near-Term Tax Free Fund NEARX $2.25 -0.01 China Region Fund USCOX $8.03 0.07