£515m fund manager: ‘Will the gold price carry on going up? Look at interest rates’

Christopher Korpan of JPM Natural Resources explains how he balances risk and opportunity in the volatile mining sector

Investors who pump money into commodity stocks have had a mixed bag of results this year.

The price of gold hit a record high in early August as people tried to hedge against stock market falls, but crude oil prices have crashed amid political disputes and falling demand during lockdown.

The £515m JPM Natural Resources fund aims to take advantage of such volatility and make returns from stocks that extract, manufacture and process essential raw materials. It invests in a range of commodities, including gold, copper, diamonds, oil and gas.

The fund suffered badly after the oil price collapsed in March, but has since been buoyed by rising gold valuations. Overall it has lost 10pc since the start of the year, while its benchmark has fallen by 11pc.

Christopher Korpan, a co-manager since 2017, tells Telegraph Money how he plans to make the most of recovering commodity prices and what he expects from precious metals.

Who is the fund for?

It’s for people who want to diversify their portfolios with commodities such as gold and oil. The sector goes through cycles, so investors should be in it for the long term.

What do you look for when you pick a stock?

First, we give scores for how well a company treats shareholders, employees and local communities and whether it is looking to reduce its carbon emissions.

Our team of 10 experts then looks at something called “franchise strength”. This evaluates how effective a ­company’s mining will be, based on where it operates. In some parts of the world you have to move a lot more rock to get the same output. I’m a geologist by background, which really helps.

After that we look at the financials. We choose stocks that will make us the biggest returns – either via dividends, earnings growth, a recovery in the share price or all three.

Will the gold price continue to rise?

We are keeping an eye on interest rates and inflation to judge that. As interest rates fall, the gold price tends to go up because investors have less incentive to hold cash. Inflation can also boost the gold price because traditional currencies’ buying power is reduced.

Where are you investing?

There is a significant increase in the demand for metals other than gold in China as it industrialises its economy.

There are also some good options in the energy sector. Oil isn’t popular at the moment and this is reducing supply and pushing up prices. We hold more oil and gas exploration companies to benefit from this. They are solely ­focused on drilling, so typically get a bigger boost when energy prices rise than firms that also handle distribution and marketing.

Why did the fund lose 17pc between august 2019 and august 2020 when the benchmark lost only 12.5pc?

Most of the damage was done in 2019. We were losing money on some of our smaller stocks, so we decided to sell them and focus the portfolio on firms we were most confident about.

What are the main risks of investing in commodities?

Prices can be very volatile, so we try to be as diversified as possible. We own 54 different stocks, which extract a wide range of commodities. Another issue is the potential for higher taxes on carbon. We judge how likely this is in the countries the firms operate in.

Do you see a future for oil and gas?

Yes. We’re expecting increased urbanisation and growing populations over the coming years, which will require the use of more of these resources. We’ll be using oil for years to come.

What have been your best and worst investments?

Over 10 years, the best would be Lundin Energy, an oil and gas firm. It has made us an average of 13pc a year over that time. The worst would be First Quantum Minerals, which mines copper. We bought it at a bad time and have owned it on and off for a decade. We have lost 3pc a year on average.

Do you have your own money invested in the fund and how are you paid?

I do and I get a base salary plus additional compensation based on my performance.

What would you have been if you weren’t a fund manager?

I would probably still be a geologist.