Funds Centre

M&G Global Basics - research update

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The last year has been an extremely challenging time for most fund managers. Fortunately these struggles are not universal and in some areas managers have been able to thrive and make strong profits despite the turmoil. The

M&G Global Basics Fund is a case in point. Its manager, Graham French, has made money for his investors over the last year during a period when world stock markets have fallen. What might the future hold?

Graham French continues to search for companies that he believes have competitive advantages and financial strength. His remit is to seek out these firms in primary industries (those that extract raw materials) and secondary industries (those that convert the raw materials into products).

The bulk of the portfolio is invested in ‘hard commodities’ (metals and fuels). One of Mr French’s favoured stocks in this area is Lonmin, the Anglo-African mining firm that is the world’s largest producer of platinum. We know platinum best from its use in jewellery, but it is also employed in dentistry and in the manufacturer of catalytic converters for cars. The price of platinum has risen strongly in recent years and a thriving Lonmin is seen as a potential acquisition for multi-national mining companies seeking high-quality exposure to this area.

Exposure to the boom in ‘soft commodities’ (crops and foodstuffs) is currently achieved via food producers, particularly those involved in supplying the Chinese market. These firms are thriving as the volume and quality of food consumed in China rises.

Mr French continues to believe that certain well-managed mining companies offer compelling opportunities, and these stocks remain the core of the portfolio. In some cases, however, he believes the recent price surges are overvaluing companies and he has trimmed back his positions to such stocks; Rio Tinto and BHP Billiton are prime examples. These profits are being reinvested in consumer-orientated stocks, especially those that have exposure to the expected spending boom in emerging markets.

The M&G Global Basics Fund is a part of the Wealth 150, our list of favourite funds in each sector, and we believe that long term investors in the fund will be rewarded. It invests in a higher risk area, however, so although in our opinion it has huge potential investors should be prepared for volatility.

» Key Features of the M&G Global Basics Fund

                                                M&G Global Basics                 IMA Global Growth

03/03/03 to 01/03/04                           40.97                                       25.78

01/03/04 to 01/03/05                           32.83                                       9.74

01/03/05 to 01/03/06                           36.75                                       25.97

01/03/06 to 01/03/07                           9.75                                         3.98

01/03/07 to 03/03/08                           20.72                                       -0.01

Past performance is not a guide to the future. Source: Lipper Hindsight, bid to bid, net income reinvested to 3/3/08.

 

Fund research is provided by Hargreaves Lansdown. Hargreaves Lansdown is an independent broker offering unit trust, stockbroking and other pension and investment services. No news or research item is a personal recommendation to deal.