Swiss alternatives fund house Harcourt achieved a five-year track record for its Belvista Commodity Fund in early April and aims to hit its AUM capacity of $5 billion, up from its current $1 billion, within the next five years.
One way of doing this will be to attract more assets from Asian clients, notes Ulrich Behm, Asia CEO of Swiss asset manager Vontobel, which owns Harcourt. “We will now focus on selling to private banks in Hong Kong and Singapore,” he adds. “At present more than 90% of the money is from Europe.”
The strategy is long-only and Ucits-compliant, meaning it cannot take direct exposure to commodity futures. Instead it buys ‘enhanced customised index swaps’ on individual commodity futures, and these can be tailored to individual underlying maturities. The fund may be invested in 20-30 commodities at any one time, from oil to metals to agricultural commodities.
The fund is registered in Singapore for sale to professional investors but not in Hong Kong. It is sold to private banks and institutions all over Europe, but has not sold much through private banks in Asia so far.
It is sold to retail markets all over Europe, but has not yet sold much through private banks in Asia.
Harcourt has distribution agreements with two of the biggest global bank fund distributors but would not say which they are.
The strategy doesn’t run any segregated accounts, but some institutional investors do buy into the institutional share class, in amounts at the level of $10 million to $30 million. Harcourt would want to see a mandate of $100 million or more before it would consider setting up a managed account.
Last year there were inflows into commodity funds, note sources, as the bull cycle of prices stuttered over Chinese demand concerns and eurozone woes, among other things.
As for commodity investments generally, “the last three years or so have been very good, but the current environment will be a bit harder”, said Jeremy Baker, Zurich-based co-portfolio manager of Harcourt's commodity fund during a trip to Asia this week.
With regard to the outlook for commodities, Baker turns to energy first. Since oil markets have limited spare capacity and there is substantial geopolitical risk in Iran, Iraq and Nigeria, he argues that prices could spike to $130–$140 a barrel in the months ahead if geopolitical tensions escalate.
As a result, Baker is following a couple of strategies. Above all, he is overweighting oil in the fund portfolio by about 2 percentage points above the benchmark (the Dow Jones-UBS Commodity Index, which weights energy, excluding natural gas and petroleum products, at around 15%).
Another current play is to go longer WTI crude and shorter Brent, because he expects the spread between the two to contract (with Brent falling and WTI rising).
Gold, meanwhile, is the largest underweight in the portfolio (at 4%, with the maximum possible being 7.5%). The main drivers of gold prices were the zero-interest-rate environment, says Baker, and the expectations on inflation and QE3, but he is less inclined to believe QE3 will happen now. “We’d need another catalyst to push up prices, but I don’t see that happening any time soon.”
“This is a non-consensus call, but we hope [US Federal Reserve chairman] Ben Bernanke will not launch QE3,” due to good momentum in the US and stronger jobs data. “We think QE3 would send the wrong signal."
As for base metals, Baker says he’s not been very successful in his forecasts so far this year, as he’s been more bearish on prices than the market. Since mid-February Baker says he’s been increasingly concerned about the levels of consumption in China.
“You only have to look at the rise of copper inventories on the Shanghai exchange and the level of raw material for copper sitting in bonded warehouses to tell you that demand is slower than the market perceives,” he notes.
Baker still expects prices to fall, however, although he is only slightly (less than 1%) underweight copper. He says he’s reluctant to have a big underweight on the metal as it trades more in line with the equity market than with fundamentals at present.
The copper price closed at $8,150 a tonne on Tuesday (April 24), he notes, suggesting it may drop to $7,600. “If it breaks below $8,000, it will break quickly,” adds Baker. “Otherwise it will hold around the $8,000–8,300 range until we see some new catalyst to drive prices higher.”
In the agricultural sector, a popular trade has been to be long beans and short corn. Baker agrees that he is more bullish in the near term on beans, but looking ahead he is favouring corn. Meanwhile, he is overweight coffee, where prices are pretty low compared with the past couple of years, but quite bearish on sugar, in view of a good Indian crop this year.