The Commodity Plus Fund managed by Pathfinder Asset Management is now available via RaboDirect. Pathfinder is a boutique New Zealand based fund manager specialising in access to global asset classes. As well as the Commodity Plus Fund, Pathfinder manages several international equity funds including one focusing on the global water industry. Pathfinder was set up in early 2009 by John Berry and Paul Brownsey, each of whom has over 20 years’ experience in New Zealand and international financial markets.
Commodities are an alternative asset class. This means they are quite distinct from traditional investments like bonds and shares. For example commodity price movements and price cycles tend to be quite different to those of shares and bonds. For this reason a small allocation to commodities can be seen as a good portfolio diversifier.
Commodities are the building blocks of global economic activity – the things that are grown (such as corn, cotton and timber) and extracted from the ground (such as copper, gold and oil). Over the long term commodity prices often tend to track inflation but over shorter periods follow unique cycles due to changing demand and supply patterns.
The interplay of demand and supply can be complex but typically leads to trends that follow months or even years. Oil demand for example is currently impacted by the rate of economic recovery in the US, growth of emerging economies like China and a global shift away from nuclear power generation.Oil supply issues include geopolitical concerns in connection with Iran and the increasing cost and difficulty of extracting many remaining oil reserves.
In simple terms, the Pathfinder Commodity Plus Fund tracks an index that seeks to benefit from trending price cycles by tracking a basket of 6 commodities (corn, wheat, crude oil, heating oil, gold and aluminium). It uses a rules based process to overweight commodities that are comparatively cheap in relation to their history and underweight those that are comparatively expensive. It also includes a mechanism to allocate to cash when market volatility increases.
Pathfinder designs its funds to reflect its vision for fund management in New Zealand:
Transparency: Investors have a right to see all information about their investment. This includes investment processes, holdings and fund performance.
Sensible fee structures: Investors have a right to know the impact of manager fees on their investment. To address this, Pathfinder adopts a total fee cap for the Commodity Plus Fund which includes all running costs.
Clear alignment of interests: Pathfinder does not charge performance fees because often these do not clearly align fund manager and investor interests. Instead Berry and Brownsey invest their own money in Pathfinder’s funds to create a strong alignment between investors and those managing their money.
Good governance and process: Pathfinder adopts a strong focus on good governance and risk mitigation. Key features are trustee oversight of funds, involvement of two strong independent directors (Catherine Savage and Sandy Maier) and the outsourcing of all fund accounting and unit pricing calculations to an independent specialist.
The Commodity Plus Fund is a unique PIE fund offering for New Zealand investors offering a useful alternative asset class diversification option for portfolios. As with all managed funds, investors should read the full investment statement before making a decision to invest.