Gervais, manager of the CF Canlife Global Resources Fund, saw performance of the fund rise by 38% during the three months to April. As a result, he can see signs of a recovery in the commodities world but would advise caution for now.A range of major commodity-linked investment indices have also shown a clear upward trajectory in the past three months, encouraging hopes that what has been long-run bear market has turned a corner.
But Gervais, who has been investing in the commodities sector for more than 15 years, believes retail investors looking for a longer-term five or 10-year investment play to boost their portfolios should give careful consideration before jumping on the bandwagon.
“We are starting to see green shoots when it comes to inflation, particularly in the US, and we think that will spread to the rest of the world, where we are reaching levels of capacity utilisation and labour demand we haven’t seen since 2007.
As a result, Gervais says the situation at present is ripe for investing in cyclical stocks within the sector but he feels there are still some big risks around, such as the debt problems in China, before the market is ready for a long-term take-off.
"Buying into resources means you are making the call that the economy is getting better. If you get that correct, you make lots of money."
For investors looking to move into the sector with a view to riding a recovery, Gervais advises waiting for the next recession which he expects in 2018. “That would be when to make the big long-term buy,” he says.
Nascent recovery
As well as managing the CF Canlife Global Resource Fund, Gervais is senior vice-president of investment management, portfolio manager and lead of the resource team for Mackenzie Financial Corporation, part of the Great-West Lifeco group, Canada Life Investments’ parent company.
His team is responsible for managing the largest resource fund in Canada.
The CF Canlife Global Resource Fund invests mainly in energy, base metals, precious metals, forest products, some industrial products, agriculture and water. It targets companies that create value either through efficiencies that boost profits, substitute products or the creation of new markets.
Gervais says the recovery in the commodities sector seen so far this year could largely be attributed to a turnaround in the performance of the US dollar.
“A rising dollar was not going to help anybody, and that is what switched. What we have not seen yet is the proper follow-through in Europe or in emerging markets of a better economy.”
Also, he added, that for most of the commodities his funds invest in, supply has finally been showing signs of getting under control this year.
He says oil supplies are starting to decline along with copper, nickel and natural gas. “We just need demand to continue doing what it’s doing.
“Oil demand is very good and thanks to low prices, people are driving bigger cars. Copper, which is a broader measure when it comes to demand for commodities, has not yet picked up,” he says.
Canlife Global Resources was launched at the beginning of 2013, priced at 100 and, after its sharp recovery, it is only now getting back towards its opening level.
“This year has been great but we still have ground to make up,” he says.
