Rising From the Ashes: Be there should the resource sector return to glory

In our last post we highlighted the dramatic decline in value which has been delivered by the three pillars of the resource sector. As the once popular BHP, RIO and WPL have fallen the market is looking to secure a balanced and safe portfolio, which would naturally have holdings in the resource sector. The Grey Nomad has spoken at lengths the opportunity to secure a ‘blue chip’ while at the same time diversify across a number of businesses. This article aims to show how to do this in the resource sector.

QRE (Unfortunately, we could not get stock quote ASX:QRE this time.)has done a great job of tracking the resource sector index. Sadly this has seen the value of the holding drop from $8.51 shortly after listing in 2010 to closing last week at $4.14. That’s a drop of 51.4%. Essentially what these guys do is track the ASX200 resource sector companies, of which the three companies featured in our last post make up 60%. And the fee they charge for all this? Its 0.39%. The key call out on this one is that the fund, after fees annualised return since inception is 0.13% unfavourable to the index it tracks, while the risk contrasted to having invested in only one or two of the resource companies is quite high.

Another ETF tracking the big players of the resource sector is ASX:OZR (Unfortunately, we could not get stock quote ASX:OZR this time.). Aiming to do the same job of QRE these guys charge a management fee of 0.4% and have a very similar profile. The big three consume 59.21% of the asset base. The performance of the group after fees is slightly improved, unfavourable to the index by 0.11% since the April 2011 inception. As mentioned above, while tracking the index you are getting a stake of about 30 companies while one single stock holding, one set of brokerage fees.

So the next one is a bit of a mouthful. ASX:MVE (Unfortunately, we could not get stock quote ASX:MVE this time.) tracks the MVMVETRG (Market Vectors Australian Junior Energy & Mining) Index, which is small cap companies with at least 50% of revenue/assets in the Australian Resource sector. Basically they want to tick off the speculative part of your resource portfolio. The biggest holding for this group is Independence Group ((Unfortunately, we could not get stock quote ASX:IGO this time.)) at just under 10%. The underlying aim here is to get fast growth companies, largely through capital gains derived from successful exploration or via mergers and acquisitions. The management fee is 0.49% and performance has been 0.61% favourable to the index, although still quite down on the any original investments from the October 2013 inception.

Another mouthful, albeit the opposite to that of above. ASX:MVR (Unfortunately, we could not get stock quote ASX: MVR this time.) tracks the MVMVRTRG index, that is the largest and most liquid ASX listed resource companies. Unlike QRE however, the three profiled companies make up only 22%. Despite this clear difference the return since its October 2013 launch has been fairly similar, trailing the index performance by 0.12%. But that said at the expense of only 0.35% this is another option to get a diversified range of ‘blue chip’ stocks without the massive capital the big boys in town have.

As I am sure you are well aware now. The Grey Nomad has no time to single blue chip holdings unless they are trading at a significant discount. Even then an ETF like those listed above make a compelling case. Right now the resource sector as a whole is operating at a discount from the past highs. Assuming the sector finally recovers, which is by no means a sure thing, each of the above holdings offer an opportunity to ride the growth of a diversified resource sector.

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