commodity equities les patrimoniales pau, june 16 th, 2011 arnaud du plessis global commodity team...
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Commodity Equities“Les Patrimoniales”
Pau, June 16th, 2011
Arnaud du PlessisGlobal Commodity TeamSenior Portfolio Manager
This material is solely for the attention of “professional” investors (see more details and definitions at the end of the presentation).
Page2
Table of Contents
01 Supporting drivers for commodities02 Commodity Outlook
– Energy
– Mining
– Gold
– Agriculture
03 Commodity Equities in Asset Allocation : Exemple of gold equities04 Commodity Expertise05 Appendix06 Q & A
Page3
Supporting Drivers For Commodities
01
Page4
Big picture supportive for commodity equities
Developed Emerging
Growth Low, improving High, stable / decelerating?
Interest rates Low, to edge up Rising
Inflation Low, rising (energy)
High, rising (soft commodities)
A favourable environment for commodities A favourable environment for commodities
Growth: More homogenous Improving macroeconomic data in the West; reconstruction in MENA and Japan: => commodity demand likely to be less dependant on Asian and Latam emerging countries
Rates: expected to edge upDeveloped countries about to start a cycle of rising rates, but no sharp upturn anticipated
Interest rate hikes to continue in emerging markets in an attempt to curb inflation, but close to the end
Inflation: commodity-driven. A rising pressure for all countriesAs commodity inflation will result more and more from supply issues than from growth, monetary policies could be less efficient to stop rising prices.
Commodity inflation: should drive more investments into hard assets
Page5
Our view on the super cycle
The next decade:– Global demand will continue to be strong for commodities, still supported mainly by
urbanization and industrialization in Emerging countries– Demand response to higher prices will be slow: a long, difficult and costly process– Main drivers for commodity prices will come increasingly from supply constraints
Supply constraints + Inflation: another leg of the Super Cycle ahead Supply constraints + Inflation: another leg of the Super Cycle ahead
Demand from developed countries matched with full supply availability
10 years of booming commodity demand from Emerging countries;
Supply constraints on a rising trend
Source: Reuters
Page6
Our general view on Commodities markets
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
2.9
3.1
3.3
3.5
3.7
3.9
4.1
Global Demand Proxy - Deviation from Trend
GS Commodity Index
Commodity prices are expected to remain very firm as supply constraints increase market imbalance for most commodities. The last series of companies reports have shown very poor figures on production volumes.
High prices driven by supply constraints, likely to limit the impact of rising interest rates
Consensus is revising upwards estimates for 2011
Global demand for commodities Global demand from China
Supply constraints over time
Supply constraints becoming the supporting factor for prices Supply constraints becoming the supporting factor for prices
Page7
Gold Environment
Source: US Global Investors
Page8
Commodity Outlook02
Page9
Production most at risk MMbbl/day
% OPEC spare capacity
Egypt 0.7 14%Libya 1.6 30%
Algeria 1.3 24%Yemen 0.3 5%Total 3.9 74%
Energy: Short term supply risks Unrest in several countries puts short term supply at risk For the moment, only part of the Libyan production is disrupted OPEC spare capacity represents 6% of world production (5.2mmbbls/day), of which 70% is in Saudi Arabia Countries most at risk represent 74% of the spare capacity which explains the nervousness on the oil price
Oil prices will factor in a higher political risk premium in the future Oil prices will factor in a higher political risk premium in the future
Oil price spikes how much should be political premiums?
Source: Financial Times
Page10
Energy: Long term supply constraints
Source: UN, McKinsey
Depletion of existing fields: 5% per year = 4mmbbls/day = 1 Iran per year
Geopolitical risk: New fields in more challenging areas = higher finding & development costs
OPEC market power to increase: 40% of oil production and 77% of reserves
Operating risk: Impact of Macondo oil spill on resource access and costs
Easing of Supply constraints to come from the rapid development in Iraq and Brazil
Supply constraints will put a floor on price levels Supply constraints will put a floor on price levels
Reserve replacement Production costs ($/b)
Production increasing more rapidly than discoveries
Page11
Copper: Constraints deriving from risk exposure of new mines
Source: Macquarie, SG Cross Asset Research, Brook Hunt1: country risk derived from Global Insight’s country risk rankings
■ New supply: little to come …………………………………..and more risky
■ A continued deficit in copper concentrates markets
25-35 year reserves, but associated risk going higher 25-35 year reserves, but associated risk going higher
2.7% expected deficit in 2011.
Inventories below 4 weeks; ETF impact
Page12
■ Deteriorating accessibility: geology, technology, costs, environment….
■ Deteriorating infrastructure: harbours, railways, roads, power, water, …
Source: Brook Hunt*: all new discoveries over 4 millions tons of contained copper
Copper: Constraints through the supply chain
*
Page13
Manager’s views on Gold marketGold demand by sector 2010
Jew ellery52%
Private Investment
19%
Official Holdings
16%Other
Fabrication11%
Lost and unaccounted
2%
Source: GFMS
Gold year-on-year returns since 1970
-40
-20
0
20
40
60
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9
Real short-term Fed funds rate (%)
YoY
retu
rns
(%)
Attractive macro and fundamental outlook Attractive macro and fundamental outlook
Today
Historical price evolution of the physical Gold and Gold equities
Relative valuation
Page14
Gold: two main factors strongly in place
Sovereign risk remains high in Europe
Japan and US could be the next
Source: Bloomberg
Rising currencies volatility
Dollar leading position much debated
Gold: reinforced save haven appeal Gold: reinforced save haven appeal
Search for safe havenCurrency alternative
Page15
What could happen with US Debt…
Page16Source : WGC, BofA Merril Lynch Global Commodities Research
Central Bank: reserves diversification – In a new Era
Market imbalance as Central Banks sales have dried up
Reserve diversification still strongly needed
Market imbalance as Central Banks sales have dried up
Reserve diversification still strongly needed
Central banks are once again net buyers after being net sellers for 21 years
Gold accounts for only 5% of reserves of BRIC Central Banks compared to >50% in developed countries
Page17
5
5,5
6
6,5
7
7,5
8
8,5
9
9,5
2000 2010 2020 2030 2040 2050
Soft commodity : strong demand growth
Source : United Nations, USDA, Bloomberg
Change in global population
(bn inhbts)
20
25
30
35
40
45
1980 1985 1990 1995 2000 2005 2010 E
Global meat consumption
(kg/capita/yr)
0
20
40
60
80
100
120
140
2007 2009 2011 2013 2015 2017 2019 2021
US biofuel production quotas
(bn l)Demography
Economy
Energy
Page18
Soft commodity : supply constraints
Source : USDA, FAO, IPCC
0
0,1
0,2
0,3
0,4
0,5
0,6
1950 1960 1970 1980 1990 2000 2010 2020
Global arable land
(ha/inhbt)
None
Slight
Moderate
Severe
Very severe
Not listed
Severity of Human induced soil degradation
Impact of global warming on farmland productivity
Urbanisation
Soil degradation
Climate change
Page19
Commodity Equities in asset allocation: Example of Gold Equities
03
Page20Amundi Rendez-Vous March 2011- page 20
Gold Equities : diversification within a Global Equity portfolio
Low correlation with Global equities
0
50
100
150
200
250
300
350
400
450
500
Jun-
94
Jun-
96
Jun-
98
Jun-
00
Jun-
02
Jun-
04
Jun-
06
Jun-
08
Jun-
10
Equity Gold Mines
Asymmetry of returns Higher returns with higher volatility
Strong diversification benefits with Gold Equities Strong diversification benefits with Gold Equities
Data : MSCI AC World Investable Market U$, DJTM World Gold Mining U$, June 1994- December 2010
Data : MSCI AC World Investable Market U$, DJTM World Gold Mining U$, Monthly returns matrix, June 1994- December 2010
Page21Amundi Rendez-Vous March 2011- page 21
Gold equities in a global portfolio: 2 examples
Gold Equities allocations generate more performance without added risk
Gold Equities performance asymmetry enables to control volatility
Source : Datastream, Amundi Research
Data: MSCI AC World Investable Market U$, DJTM WORLD GOLD MINING U$; June 1994- December 2010
Gold Equities Allocation improve Risk/Return Profile Gold Equities Allocation improve Risk/Return Profile
Page22
Commodity Expertise04
Page23
Commodity equities: the obvious winners of higher prices
High cash flows to continue Producers to reduce further debt levels and turn net cash positive Cash flow generation quicker than capital expenditure
Cash Flows
Cash surplus to be returned to shareholders through dividends and share buybacks
More return than with physical commodities
High returns
M&A 2010 a record year for M&A. For example in mining with over $134bn M&A strong start in 2011
Favorable factors for equity shareholders Favorable factors for equity shareholders
Page24
Return of M&A activities – most recent deals
M&A the only option for quick production growth M&A the only option for quick production growth
Cash$6.3b38%DaniscoDuPont FoodAgriculture
Equity$513 m31%RichfieldNewgoldGoldPrecious
Cash$7.8 bn30%EquinoxBarrick GoldCopperMaterial
SectorSub-
sector Acquirer Target Premium Size Deal Structure
Energy Coal Alpha Natural Massey 31% $8.5 bn Cash + Equity
Energy Oil Drilling Ensco Pride 24% $8.5 bn Cash + Equity
Material Copper MinMetals Equinox 23% $6.5 bn Cash
Precious Gold Newmont Fronteer 37% $2.3 bn Cash
Cash$6.3b38%DaniscoDuPont FoodAgriculture
Equity$513 m31%RichfieldNewgoldGoldPrecious
Cash$7.8 bn30%EquinoxBarrick GoldCopperMaterial
SectorSub-
sector Acquirer Target Premium Size Deal Structure
Energy Coal Alpha Natural Massey 31% $8.5 bn Cash + Equity
Energy Oil Drilling Ensco Pride 24% $8.5 bn Cash + Equity
Material Copper MinMetals Equinox 23% $6.5 bn Cash
Precious Gold Newmont Fronteer 37% $2.3 bn Cash
In the portfolio
Page25Source : Datastream
Equities outperform physical commodities in the long run
0
100
200
300
400
500
600
700
800
900
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
GSCI Commodity Tot Return Ind MSCI Wrld Energy MSCI Wrld Metals & Mining FT Gold Mines Dax Agribusiness
Page26
The fund does not invest directly in commodities, but through equities only. Rather than adding to price pressure and speculation
We hold a long term-approach, as our goal is to identify throughout the entire value chain the sectors and companies that will most benefit from supply/demand imbalance and best deliver on their growth potential through a strong and sustainable development. The minimum recommended investment horizon is 5 years.
Investment Philosophy
Page27
USD 3.3 bn AuM (04/30/2011)
19 years average experience
Global Commodity Equity team
Global Resources Anne Ruffin (Head of the team since 98)
USD 1 250m Henrietta Lance Annualised excess return of 2.0% - IR of 0.321
Energy & Renewables Stéphane Soussan USD 320 m Annualised excess return of 5.0% - IR of 0.531
Gold Arnaud du Plessis USD 728 m Annualised excess return of 4.5% - IR of 0.431
Agriculture & Water Nicolas Fragneau USD 496 m Annualised excess return of 4.2% - IR of 0.433
Global Mining Anne Ruffin USD 517 m Annualised excess return of 3.8% - IR of 0.922
1since Dec 31, 98 2 since Apr 26, 10 3since Dec 12, 07
Page28
Amundi capabilities in commodity expertise: Global Resources
Annualised return as of 30th April 2011 1 Y 3 Y 5 Y 7Y 10Y Since inception
Composite Global Resources 25.0% 3.6% 8.6% 17.3% 15.3% 14.4%
Benchmark* 27.0% 5.4% 9.2% 15.9% 14.1% 12.6%
Benchmark
Performance in USD since inception (31 December 1998)
*Benchmark : 1/3 MSCI World Materials – 1/3 MSCI World Energy – 1/3 FTSE Gold Mines
Source: Amundi Gross performance in USD as at the end of April 2011.
Past performance does not prejudge future results, nor is it a guarantee of future returns
Composite Global Resources
Calendar yr returns (gross)
Composite Bench Out-perf
1999 40.3% 18.9% 21.2%
2000 -13.2% -9.3% -3.9%
2001 -0.5% 0.3% -0.8%
2002 11.0% 10.6% 0.4%
2003 42.0% 36.2% 5.8%
2004 12.2% 11.6% 0.6%
2005 29% 25.4% 3.6%
2006 22.4% 20.3% 2.4%
2007 35.6% 29.0% 6.6%
2008 -39.3% -34.6% -4.7%
2009 44.0% 38.6% 5.6%
2010 21.2% 21.1% 0.1%
2011 YTD 7.0% 8.0% -1.0%
Consistent outperformance over the past 12 years
Page29
0
100
200
300
400
500
600
700
800
janv-99 janv-00 janv-01 janv-02 janv-03 janv-04 janv-05 janv-06 janv-07 janv-08 janv-09 janv-10 janv-11
Amundi capabilities in commodity expertise: Global Gold
Annualised return as of 30th April 2011 1 Y 3 Y 5 Y 7Y 10Y Since inception
Composite Global Equities – Gold 24.3% 11.8% 8.3% 18.3% 21.2% 18.2%
FT Gold Mines 20.4% 14.0% 9.3% 16.8% 19.0% 13.6%
Benchmark
Performance of Gold Equities composite in USD since inception (31 December 1998)
Composite Global Equities - Gold
Source: Amundi. Gross performance in USD
Past performance does not prejudge future results, nor is it a guarantee of future returns.
Annualised excess return since Dec 31 1998: 4.6%Information ratio since Dec 31 1998: 0.50
Calendar yr returns (gross)
Composite Bench Out-perf
1999 111.16 57.60 53.56
2000 -30.86 -31.25 0.39
2001 12.58 23.67 -11.09
2002 58.48 55.48 3.00
2003 52.28 41.90 10.38
2004 -3.23 -7.72 4.49
2005 32.77 28.75 4.02
2006 24.71 13.29 11.43
2007 18.5 21.94 -3.43
2008 -31.00 -19.24 -11.75
2009 42.41 30.50 11.91
2010 31.85 29.59 2.26
2011 YTD 2.10 0.91 1.19
Consistent outperformance over the past 12 years
Page30
50
100
150
200
250
300
janv-04 janv-05 janv-06 janv-07 janv-08 janv-09 janv-10 janv-11
Composite Bench
Consistent outperformance over the past 7 years
Annualised return as of 30th April 2011 1 Y 3 Y 5 Y 7Y Since inception
Composite Global Energy 18.0% 0.2% 2.1% 11.9% 12.6%
Benchmark* 15.6% 1.1% 2.9% 10.4% 11.3%
Benchmark
Performance in EUR since inception (01 January 2004)
*Benchmark : MSCI WORLD ENERGY (DS)
Source: Amundi Gross performance in EUR as at the end of April 2011.
Past performance does not prejudge future results, nor is it a guarantee of future returns
Composite: 150M EUR
Global EnergyCalendar yr returns (gross)
Composite Bench Out-perf
2004 18.4% 18.9% -0.5%
2005 61.7% 48.4% 13.3%
2006 2.9% 5.4% -2.5%
2007 23.1% 17.1% 6.0%
2008 -39.9% -34.9% -5.0%
2009 29.9% 22.3% 7.6%
2010 20.2% 19.7% 0.6%
-0.1%5.4%5.3% 2011 YTD
Page31
Amundi capabilities in commodity expertise: Global Agriculture
30/04/2011 (USD) 2011 (Ytd) 2010 2009 2008Inception
(31/03/08) ann
Composite Global Agriculture 8.0% 22.06% 64.5% - 47.9% 4.0%
S&P Composite 7.9% 19.0% 41.6% - 44.1% - 0.1%
20
30
40
50
60
70
80
90
100
110
120
mars-08
juin-08
sept.-08
déc.-08
mars-09
juin-09
sept.-09
déc.-09
mars-10
juin-10
sept.-10
déc.-10
mars-11
Composite Global Agriculture Benchmark S&P composite
Source : AmundiFrom inception to 31 August 2010: S&P Global Natural Resources Agriculture From 31 August 2010: S&P Global Agribusiness
Page32
Appendix05
Page33
Anne Ruffin
Head of Commodity Equities
Senior Portfolio Manager
Global Resources; Global Mining
Anne is Head of the Global Commodity Equity team and has been managing Commodity Equity portfolios since 1998, including LCL Actions Or Monde.
Prior to that, she worked as an Auditor with Ernst & Young 1988-1991 within the oil department. Anne Ruffin joined Amundi in 1991 where she worked as a Financial Engineer until 1994, a Financial Analyst on commodities 1995-1998, and then a Global commodity Portfolio Manager 1998 - 2010.
Anne holds a Masters in Banking & Finance and in Financial Engineering (1988) from Ecole Supérieure de Commerce de Paris, one of France’s top Business schools. She is also a Graduate of the French Society of Security Analysts (SFAF).
Global Commodity Equity Team
Arnaud du Plessis joined Amundi in November and has taken responsibility of the Gold expertise, in close cooperation with Anne.
Arnaud was previously head of cyclicals at Natixis Asset Management (2002-2010). He co-managed gold equities and cyclical funds. More particularly, he was in charge of precious metals and basic materials , as well as energy.
Prior to that, he worked as a European equities portfolio manager with Credit Lyonnais Asset Management (1998-2002) after being Head of derivative trading (1989-1998).Arnaud started his career with Patrice Wargny SA in 1988 as an option broker.
Arnaud is a Graduate of Institut Supérieur de Gestion and also of the French Society of Security Analysts (SFAF).
Arnaud du Plessis
Senior Portfolio Manager
Global Gold
Page34
Global Commodity Equity team
Stéphane Soussan
Portfolio Manager
Global Energy , Renewable Energy
Stéphane started out as a Fund Manager Assistant at Sinopia Asset Management in 1996. He joined Oddo in 1998 as a sell-side Analyst for oil and metal sectors and went on to Exane BNP Paribas in 2001 where he was a sell-side Analyst for the oil sector.
In 2008 he joined the Global Resources team as a portfolio manager focusing on energy and renewable energy sectors.
Stéphane is a graduate from ESSEC, he has a Master of finance from IEP and is a SFAF member (Société Française des Analystes Financiers). He has more than 14 years experience in asset management.
Research team
Nicolas joined Amundi in 2006 as a Commodity Equity portfolio manager within the Global Commodity Equity team.
Prior to joining the company he worked as a North American & Energy equity portfolio manager at Raymond James Asset Management after joining in 2000. He began his career at Cap Gemini in 1999 as an IT developer.
Nicolas holds a Masters degree in Management Science (Specialization in Finance) from the University of Paris IX Dauphine (2000). He is a graduated of the French Society of Security Analysts (SFAF) and the CEFA (2003).
Nicolas Fragneau
Portfolio Manager
Global Agriculture, Fishery, Water
Page35
Global Commodity Equity team
Henrietta Lance started her career in London in 1985 with Prudential Bache. In 1989 she moved to Paris to specialise in European equities first working for François Dufour Kervern. In 1992 she joined Société Générale and then in 1999 she moved to Exane before returning to Société Générale Asset Management in early 2007. She joined the Global Resources team in October 2008.
Henrietta graduated from Edinburgh University, she holds the CIIA and is a SFAF member (Société Française des Analystes Financiers). She has more than 25 years experience in asset management.
Henrietta Lance
Senior Portfolio Manager
Global Chemicals and other Materials