Third Quarter 2017

During the third quarter, the Global Resources Fund underperformed its benchmark, the S&P Global Natural Resources Index, by 339 basis points. Weak performance was due in part to higher cash allocations and an overweight position in junior natural resource companies.See complete fund performance.

Past performance does not guarantee future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost.

Strengths

  • The fund’s overweight position in building materials, as well as its underweight position in integrated oil and fertilizer sectors, resulted in positive contributors to the fund’s performance.
  • The fund’s superior stock selection in the industrial, paper and forest, oil midstream and base metals sectors had a positive contribution to the fund relative to the benchmark this quarter.
  • Holdings that were among the fund’s best contributors to performance included Ferrexpo, Beach Energy and Jastrzebska Spolka Weglowa.

Weaknesses

  • An overweight position in junior natural resource stocks and clean energy, together with an underweight position in base metals, had the largest negative contribution to the fund this quarter.
  • The fund’s relatively high cash holdings and inferior stock selection in the refinery and industrial metals space had a negative contribution to the fund’s performance.
  • Siemens Gamesa Renewable Energy, BlueScope Steel and PentaNova Energy were among the fund’s most significant laggards this quarter.

Opportunities

  • Germany’s ZEW Economic Sentiment Index rose seven points in September to 17. A rise in bank lending and increasing investment activities by both the government and private firms are likely reasons for the financial market experts’ significantly more positive outlook compared to that of last month. The release suggests the strong growth momentum in Europe may continue, and the high growth in European Union (EU) oil and energy demand—which has helped rebalance the global oil market—may continue for the remainder of the year.
  • Moody’s reports that it expects the credit metrics of Chinese property developers to improve over the next 12 to 18 months as revenue growth outpaces growth in debt. The credit rating agency, which covers 43 companies in the sector, expects the weighted-average revenue to adjusted debt ratios to rise to 76 percent next year from 64 percent in June this year. The improvement in liquidity among Chinese property developers may unlock more growth avenues for the commodity-dependent sector.
  • The International Energy Agency (IEA) has revised upward its demand growth estimate for crude oil to 1.6 million barrels per day. The agency cites stronger-than-expected demand growth from the Organization for Economic Cooperation and Development (OECD), particularly in Europe and the U.S. Despite acknowledging that Hurricanes Harvey and Irma may have slowed U.S. oil demand growth in the third quarter of 2017, the IEA revised its demand projections upward for the third consecutive month.

Threats

  • The U.S. dollar may continue to recover beyond its recent rebound as traders’ positioning shows the prevailing bias remains short. Traders are still betting against the “greenback,” with net positioning data showing traders added $900 million of short exposure. The recent addition drives the net short position in the U.S. dollar to $8.4 billion, the highest since 2004. A rebounding dollar may pressure commodity prices lower.
  • China’s sovereign credit rating was downgraded from AA- to A+ by Standard & Poor’s, the second international rating agency to do so this year after Moody’s lowered its sovereign rating in May. The agency cited concerns “that credit growth in the next two to three years will remain at levels that will increase financial risks gradually.” The rating downgrade may reduce the availability of capital for Chinese corporations, which could result in weaker demand for imports and commodities.
  • OPEC’s crude output may continue to rise as Nigeria says it will resist any attempts to curb its oil production, according to a Financial Times story. The African producer, which has been absent from the OPEC supply cut agreement as it struggled to recover production following a series of terrorist attacks on its infrastructure, said it will not join any supply agreement at least until March 2018. This poses a threat to the cartel’s efforts to cut global supplies and boost crude prices toward $60 a barrel.

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 ZEW Economic Sentiment is an amalgamation of the sentiments of approximately 350 economists and analysts regarding the economic future of Germany for the next six months. The survey shows the balance between those analysts who are optimistic about Germany's economic future and those who are not.

A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).

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 9/30/2017: Ferrexpo PLC 1.64%, Beach Energy Ltd. 1.63%, Jastrzebska Spolka Weglowa SA 2.09%, Siemens Gamesa Renewable Energy SA 0.65%, BlueScope Steel Ltd. 1.16%.     

 

Net Asset Value
as of 12/14/2017

Global Resources Fund PSPFX $5.94 0.01 Gold and Precious Metals Fund USERX $7.33 No Change World Precious Minerals Fund UNWPX $5.72 0.08 China Region Fund USCOX $11.17 -0.11 Emerging Europe Fund EUROX $7.07 0.03 All American Equity Fund GBTFX $24.54 -0.07 Holmes Macro Trends Fund MEGAX $21.88 -0.17 Near-Term Tax Free Fund NEARX $2.21 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change