May 2016 News
Dear Client
Investors in our unit trust fund of funds may have noted that
commodity and resources funds have done substantially better than our fund of
funds over the past few months. As the JSE comprises of a heavy weighting in
resources the JSE has also been doing marginally better than our funds.
We do not think that it is a good idea at this stage to be over
weighted in commodity and resources funds and that recent growth in these shares
may not be sustainable. Commodity prices have correlated closely over the past
15 years with the price of US Dollar. The reason is simple, as commodities are
priced in Dollar and when the Dollar is weak — the cost of purchasing
commodities “for non–US buyers” becomes more affordable. This increases demand
in the short term. We agree with Callan Williamson that the Dollar strength has
been the key driver behind commodity shares performances to-date. There is
little reflection on the underlying economies of the commodity markets and the
resource shares which we feel still face headwinds.
Friendly greetings
Andre Delport
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