Building on fundamentals: New Portfolio Manager David Ginther offers insights, outlook
- Key factors include continued slow growth in U.S., ongoing recession in Europe and slower growth in China.
- U.S. will continue to expand its oil production, especially via shale formations.
- Somewhat bullish about agriculture and chemicals sectors.
David P Ginther, CPA
Michael T. Wolverton, CFA
Assistant Portfolio Manager
David Ginther became portfolio manager of the Ivy Global Natural Resources Fund on July 2, 2013. Ginther, who also manages the Ivy Energy Fund, brings 18 years of industry experience to his new assignment and a broad knowledge of natural resources. He offers insights into his process for managing the Fund and discusses his views and outlook for resources markets.
You have extensive experience in the energy industry. What about other sectors in the natural resources and commodities markets?
It starts with my background in the energy industry and my past responsibilities as portfolio manager on several Ivy Funds. I began my career with Amoco Corp. in 1986, where my experience ranged from analyzing natural gas fields in the U.S. to working in Africa as part of the Worldwide Exploration Business Unit. I have traveled worldwide to key countries and energy production areas across the Mideast and Africa, and have met with leaders of OPEC.”
My work with Ivy Funds then included investment analyst positions before I was named assistant portfolio manager of the Ivy Core Equity Fund. I went on to manage the Ivy Dividend Opportunities Fund from 2003 to 2013 and I have managed the Ivy Energy Fund since its inception in 2006.
My work on these and other funds gave me experience with natural resources at many levels, including analyzing macroeconomic issues and company fundamentals, and selecting resource- related investments.
Who else will be on your team to manage the Ivy Global Natural Resources Fund?
Our team on the Ivy Global Natural Resources Fund now includes Michael Wolverton as assistant portfolio manager. He joined our firm in June 2005 as an investment analyst and was named to his new role in July 2013. Mick’s research responsibilities through the years have been concentrated in all aspects of energy as well as metals and mining, so he brings a wealth of knowledge to our team.
We also will draw on Ivy Funds’ entire pool of 26 analysts. That group includes equity analysts who focus on natural resources and commodities as well as an analyst based in Hong Kong.
Finally, we will continue to use the collaborative process employed by all of our portfolio managers, analysts and economists in our daily “Morning Meeting.” It is the foundation of the Ivy Funds investment management discipline. The Morning Meeting ensures we share investment ideas while empowering portfolio managers to pursue the opportunities they find most compelling.
Can you explain the process you will use to manage the Fund?
My process will be similar to the way I manage the Ivy Energy Fund, in that I am seeking to provide capital growth and appreciation, while at the same time trying to manage the risk for investors in commodities markets. I expect to maintain a widely diversified portfolio that is based on an analysis of the long-term fundamentals affecting natural resources and related companies. I can summarize my investment philosophy and process this way:
- Focus on fundamentals that drive stock performance and invest in long-term secular change
- Take advantage of global opportunities
- Avoid overreaction to volatility in commodity prices
- Manage risk with an emphasis on diversification
I also will seek to keep annual turnover at a similar level to other funds I have managed, which has been around 30 to 50%.
Let’s talk about the Fund itself. Do you expect any changes in its objective or strategy?
The Fund’s objective will not change. The prospectus previously specified, “Exposure to companies in any one particular foreign country other than Canada is typically less than 20% of the Fund’s total assets.” As of July 2, 2013, we have removed that exception for Canada. While we will continue to review all aspects, there are no other changes at this time.
What is your outlook for natural resources, including in key sectors?
My analysis starts with an assessment of the macroeconomic environment and global market outlook. We know the world always is changing because of a range of factors, including new technology, growth in demand and challenges to supply. Those challenges often relate to geopolitical issues. I think key factors now include the continued slow economic growth in the U.S., ongoing recession across Europe and the slower growth in China.
Against this backdrop, I think the U.S. will continue to expand its oil production, especially via shale formations, and thus keep adding to overall supply. I also think offshore and deep-water production will be a major factor for world production in the future, which may provide opportunities in a wide range of exploration, drilling, production, services and other companies.
In mining, minerals and metals, I’m cautious because of the heavy capital expenditures and expansion projects that companies completed in recent years, which increased supply. Many of the major companies now are reducing such expenditures and focusing on improving returns on their past investments, not on further expansion.
I’m somewhat bullish about the agriculture and chemicals sectors. Grain supplies generally are tight but demand continues to grow along with the global population. I think it may take two years to get back to what generally are considered “normal” supplies of corn, and the size of the U.S. wheat harvest has been very different in various growing areas. Weather can have a huge impact on these sectors, but I think there is potential now.
In summary, I think energy can be a foundation for the Fund, and that sector probably has the best fundamentals among commodities now. I would include the energy, agriculture and chemicals sectors in this viewpoint. For example, low natural gas prices now benefit gas exports as well as chemicals prices.
Tell us more about your views on the impact of China and other emerging markets on natural resources markets.
I consider China and other emerging markets to be key drivers for natural resources. There are huge and growing populations in that part of the world. For example, there are about 1.3 billion people in China, 1 billion in India and 500 million across the Mideast. They share a growing desire to increase their standards of living to something closer to what is found in developed countries.
This attitude provides a foundation for increasing the long-term demand for commodities and other resources. While emerging markets can be volatile, I think they will drive demand going forward. I also think Africa presents potential for oil and mineral resources, although the lack of financial transparency and frequently unstable governments across that continent mean I do not expect significant opportunities there soon.
Past performance is no guarantee of future results. The opinions expressed in this commentary are those of the Fund’s manager and are current through July 26, 2013. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
Risk factors. As with any mutual fund, the value of the Fund’s shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in energy and natural resources can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments; and the cost assumed by energy companies and natural resource companies in complying with environmental and safety regulations. Investing in physical commodities, such as gold, exposes the Fund to other risk considerations such as potentially severe price fluctuations over short periods of time. The Fund may use a range of derivative instruments in seeking to hedge market risk on equity securities, increase exposure to specific sectors or companies, and manage exposure to various foreign currencies and precious metals. Such hedging involves additional risks, as the fluctuations in the values of the derivatives may not correlate perfectly with the overall securities markets or with the underlying asset from which the derivative’s value is derived. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the prospectus.
Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. For a prospectus, or if available a summary prospectus, containing this and other information for the Ivy Funds, call your financial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.