T. Rowe Price is exploring opportunities in resources as the result of surging commodity prices and a push for electric vehicles.
Resources stocks had risen in recent months thanks to a rotation into value stocks and a steep rise in the price of commodities.
The Australian Equity fund had 9.2% in its largest weighting at BHP which had risen 8.8% since the start of the year.
Randal Jenneke, head of Australian equities, said: “Resources have benefited from the well-known near-parabolic rise in commodity prices. Though some of these price gains are likely more sustainable than others (e.g. copper). Copper sits on the right side of change and has a long-term structural tailwind from renewables and EV demand.
“Iron ore we put firmly in the less sustainable camp, which should qualify it as another candidate that has “passed its peak” and should likely continue to roll over. This is given the dual support from supply disruptions (Vale) and demand strength from Chinese steel production/stimulus are set to fade. In turn, we have reduced our exposure to the commodity.”
Strong commodity prices were also a reason for the firm’s multi-asset team to hold an overweight to Australia. Australia was one of only three geographic overweights held by the team which was also overweight to emerging markets, again because of commodities, and Japan
“Data continues to surprise to the upside while the policy backdrop remains supportive. Rising yields and surging commodity prices are positive for the two largest sectors,” the team said.
Meanwhile Jenneke said there “renewed opportunities” in the healthcare sector following underperformance by the sector during the pandemic.
“Healthcare saw its largest year-on-year underperformance versus the ASX 200 in more than a decade. In turn, valuations look attractive particularly relative to other areas of the market. Amid an investment landscape where many areas have or will shortly pass their peak and roll over, we believe quality is poised to outperform as growth and inflation normalise,” Randal said.
The T. Rowe Price Australian Equity fund returned 24.3% over one year to 31 May, 2021, according to FE Analytics, versus returns of 28.2% by the Australian equity sector within the Australian Core Strategies universe.
Performance of T. Rowe Price Australian Equity fund versus sector over one year to 31 May 2021