charts du jour – are you positioned appropriately in commodities?

At the beginning of the year we wrote this piece here at Titan – http://www.spreadbetmagazine.com/blog/titan-investment-partners-why-were-backing-the-mining-sector.html expressing our views as to how undervalued the mining sector is.

The chart here, which is the primary proxy for the global commodities basket, caught our eye this weekend.

We can see that the commodities spectrum is at its highest point since 3Q 2012. In contrast, despite some good moves in certain stocks like Kazakhmys, Genel, GPX etc, the FTSE 350 Mining index is actually only up 0.82% YTD. We contend that this sector is on the cusp of closing the gap with the underlying base materials index that they actually sell. Particularly as Free Cash flow yields for the sector are expected to rise materially over the next few years as divestments continue and expenditure is cut back. See chart profile below:

Below is the returns achieved on our Precious Metals and Mining funds YTD relative to their benchmarks (to 20 June 2014). We think the precious metals sector is in the nascent stages of a cyclical bull run that will take prices much higher than where they are currently and in the larger commodities plane, that valuations will be re-rated during the 2H of 2014 into 2015. 

Past performance is not necessarily a guide to the future.

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This piece should not be taken as an advocation to buy (or sell) these instruments and you should always take independent financial advice in relation to your own circumstances.