Not every hedge fund manager is betting the farm on natural gas.
New York-based Van Eck Global Absolute Return Advisers Corp. certainly isn't. The company, which has been offering alternative investments for more than 50 years, runs a number of funds, including those that invest in both commodities and commodity stocks. It manages about $4-billion (U.S.) in assets.
"We think short term that energy is not necessarily where we like to be," said Charl Malan, senior analyst at Van Eck. And that decision is driven purely by the fundamentals for natural gas. "The fundamentals we see are showing us that natural gas is going to be weak," between now and the end of the year, he added. It has no position in natural gas.
Van Eck's near-term view of gold is more upbeat and it's betting on big gains. The firm considered gold overvalued when it was trading around $720 (U.S.) an ounce and more in mid-May but it fell to a close of $583.20 on the New York Mercantile Exchange yesterday.
Van Eck's near-term view on base metals varies. It likes iron ore, but not steel and copper. It is short copper and hoping to profit from its decline.
Mr. Malan was in Toronto in connection with the offering to Canadian investors of the Robson Van Eck Hard Assets Fund. The fund can take short and long positions in commodities and commodity stocks.
Van Eck is also long agriculture.
At the current time, stocks dominate the portfolio. "The majority of the base and industrial metal stocks -- are discounting a substantial pullback" in prices, he said, and the same is true for energy stocks. Valuations on exploration and production sector stocks are discounting an oil price of roughly $40 a barrel, he said. Oil fell $2.14 to $61.60 yesterday.
But Mr. Malan's longer-term view of commodities is bullish. "I think the commodity cycle is still very much in place," he told an audience in Toronto. He expects commodity prices will be higher long term than they have been in the past.
For example, he pointed to the fact that the number of Chinese cities with populations of 4.5 million or more and per capita gross domestic product of more than $3,000 (U.S.) is expected to rise from 45 in 2003 to 86 in 2010 and then 147 in 2025.
Growth in the number of big cities will boost demand for spending on infrastructure and demand for base metals.
Higher input costs also factor into the equation, he said. To illustrate the point about higher costs, Mr. Malan noted that the cash cost of producing nickel rose 63 per cent between 2001 and 2005. Costs have been increased as the grade of ore has decreased. In 2003, there were 29 years of global copper supply; it has since slipped to 24 years.
