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March 2013

Strengths

• The Global Resources Fund started the year on a positive note with a 3.68 percent return in the first quarter. For complete fund performance, click here.
• The portfolio benefited from overweight positions in industries with strong gains in the quarter such as U.S. refiners (+35.65 percent) and midstream Master Limited Partnerships (+20.08 percent), which contributed to fund performance.

Weaknesses

• After a strong relative year in 2012, the Global Resources Fund underperformed its benchmark by 269 basis points during the first quarter.   However, the portfolio continues to exhibit approximately 17 percent less volatility than daily returns of the fund’s benchmark, the Morgan Stanley Commodity Related Equity Index (CRX).
• The fund has an overweight position in junior natural resources stocks which performed poorly, as measured by an 11.79 percent decline in the S&P/TSX Venture Composite Index.  The portfolio is also overweight precious metals mining stocks which declined 18.09 percent during the fourth quarter.

Opportunities

• With the most recent announcement by the U.S. Federal Reserve of an open-ended quantitative easing program, the portfolio managers remain constructive on the likelihood that rising commodities prices resulting from global central bank easing will be a catalyst for relative performance of commodity-related stocks.
• Easing Fed policy has supported the U.S. housing recovery and has provided a catalyst for the timber & forest sector and the building materials sectors as the construction industry recovers.  Given the severe sell-off, gold and precious metals mining stocks look attractive. 
• After several years of declining prices and a 60 percent decline in the U.S. natural gas drilling rig count, natural gas prices are rising as supply and demand looks to tighten in the near-term. 

Threats

• Sovereign debt problems and weak economic prospects in Europe remain a concern for the global economy. 
• Growth expectations for China have been tempered over the last year with forward GDP to average closer to 7.5 percent per annum.  Any significant dip below lowered expectations could have material impact on commodities and related equities.  

Past performance does not guarantee future results.

The Morgan Stanley Commodity Related Index (CRX) is an equal-dollar weighted index of 20 stocks involved in commodity related industries such as energy, non-ferrous metals, agriculture, and forest products. The index was developed with a base value of 200 as of March 15, 1996. 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. The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500. The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500. The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The index benchmark value was 500.0 at the close of trading on December 20, 2002.