JF launches five elements commodities fund

The portfolioÆs investment theme combines the traditional Asian five elements of metal, wood, water, fire and earth with urbanisation and industrialisation trends.
JF Asset Management has added a new commodities-related fund to its portfolios available in Asia, the JF Five Elements Fund. The portfolio will invest in stocks related to the traditional Asian five elements of metal, wood, water, fire and earth within the natural resources and commodities sectors in Asia.

The fund aims to capitalise on the accelerating trends of urbanisation and industrialisation in Asia through a portfolio of commodities, mining, infrastructure, logistics, power and agricultural stocks, says Terry Pan, JF Asset ManagementÆs head of retail business.

Specifically, the fund will invest in companies predominantly engaged in the extraction, refinement, development, production, distribution, marketing or retail sale of natural resources, commodities and their secondary products such as energy, paper, metals, basic materials, construction and infrastructure.

JF Asset Management doesnÆt expect to turn in quick profits for investors, noting the fund has a relatively longer-term horizon and tends to be riskier than those that invest in other sectors with shorter business cycles.

AsiaÆs accelerating urbanisation and industrialisation trends mean huge appetite for base metals and steel as the backbone for most buildings and construction projects, JF Asset Management says. China is increasing its consumption of metals rapidly and currently accounts for approximately 20% to 50% of global demand, while India is also fast becoming a major consumer.

Aluminium looks robust over the medium- to longer-term due to higher electricity costs in Asia as well as countries such as China and India ramping up capacity in terms of constructing more power stations and transmission networks, according to JF Asset Management.

The demand for timber for construction as well as paper and packaging used in the retail sector is increasing in Asia, according to JF Asset Management, and is driven by strong infrastructure needs and higher living standards.

Land allocation for forestry is declining, however. Restrictions on timber supply from Indonesia, for example, look set to continue as a result of various resource-management policies. Wood prices have recently lagged other materials and are expected to pick up strongly, driven by higher demand and tighter supply.

Meanwhile, Asia has only 36% of the worldÆs water available, but 60% of the population. Domestic and industrial water demands in Asia are growing rapidly at rates projected to range from 70% to 345% between 1995 and 2025.

JF Asset Management notes the reason why water is a major investment theme: the growing investment needs for this important resource in the region and waterÆs defensive characteristics in a falling market, given their strong cash flows and higher yield.

Accelerating industrialisation and stronger demand for cleaner energy are key drivers to the growth of coal, liquid natural gas and power industries in Asia, and thatÆs what JF Asset Management refers to under the fire investment theme.

Driven by sustained strong power demand, ultra high voltage programmes and grid modernisation, budgets to expand power transmission and distribution systems in Asia are ambitious. The region is in the middle of the negotiating season and coal prices are expected to rise by at least 50% due to further demand for power used in construction and infrastructure projects.

The earth investment theme, meanwhile, covers rising income and changing diets that will continue to boost demand for agricultural commodities in Asia, while the supply side is being affected by land and water constraints. In addition to soft commodities, JF Asset Management also plays the earth theme through fertiliser companies. As land use for arable land diminishes, fertilisers will become ever more important in farming in order to increase production and improve the quality of harvests.

The fund, to be co-managed by David Smith and Mayur Nallamala, has a minimum investment requirement of $2,000. Initial charge is 5% and annual management fee is 1.5%. The fund also carries a 10% performance fee.
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