This Legendary Commodities Fund Is Closing. Here's What That Could Mean for Investors
What was once the world’s largest commodities hedge fund is officially closing, creating new opportunities for some investors to get exposure to raw materials and mining using other funds. According to Bloomberg, Blenheim Capital Management’s CEO and chief investment officer, Willem Kooyker, is calling it quits after a 50-year money management career that made him a legend in oil, metals and agricultural markets.
At its peak, Blenheim Capital oversaw as much as $9 billion in assets. That was in 2011, when China’s economy first started to cool after years of double-digit annual growth.
Even though China still represents a significant share of world commodities demand, nervous investors fled the Blenheim fund, whose assets under management fell to $1.5 billion by 2016.
Says Bloomberg’s Eddie van der Walt, the fund’s closure “may signal a turnaround is due” in commodities and raw materials.
I also believe Kooyker’s decision could mark a bottom in asset prices. The reason I say this is we saw something similar happen last year in the gold mining industry. In July 2018, Vanguard announced that it would be closing its $2.3 billion Precious Metals and Mining Fund in response to unfavorable market forces. Many analysts took this as a sign that gold was oversold and ready to reverse course.
As if on cue, gold prices began to tick up following Vanguard’s announcement, eventually hitting a six-year high of around $1,566 an ounce in September 2019. In the 12-months through September 30, the yellow metal gained some 20 percent. Gold mining stocks, as measured by the NYSE Arca Gold Miners Index, fared even better, returning an incredible 45 percent over the same period.
Granted, past performance does not guarantee future results. But I’m a contrarian, and when I see an asset class become so unloved that funds begin to close—whether it’s Vanguard’s or Blenheim’s—then I believe it could be time to consider taking a position.
Commodities Undervalued Relative to Stocks Right Now
There are additional indicators that commodities and raw materials are undervalued right now. Below is an update of a chart I’ve shared before, showing the historical ratio between commodities, as measured by the S&P GSCI (formerly the Goldman Sachs Commodity Index), and the S&P 500 Index. The higher the number, the more overvalued/overbought commodities have been relative to the stock market. The lower the number, the more undervalued/oversold they’ve been on a relative basis.