Australian Natural Resources Fund closure

diesel100

I used to hold units in the Australian Natural Resources Fund managed by Thesis Unit Trust Managers (formely Ocean fund mgt)


I had a long term view on my holding and with the resources bear market lost quite a bit, however, I had hope this fund would recover in the long term, but now I don't have that choice.


DAK if I can make a complaint to the fund manager or other UK body as it seems unfair for the managers to close a fund with no warning or justification too.




thanks

bowlhead99

According to the year end factsheet http://www.oceanicasset.com.au/download/pdf/monthly_reports/Monthly_Report_Dec_14.pdf , there was only £1m of value in the fund at December. Compared to say JPM Natural Resources which has also haemorrhaged value but is still a billion dollar fund. The market conditions have not made single-country junior mining funds a good place to be.

You simply can't run a fund that's only got a million quid in it. A 1% management fee is £10k. To a manager that's not worth having, and neither is a performance fee when they're so far under the high watermark. Administration, legal, accounting/audit and other costs will cost you several percent of NAV a year and trading small amounts of shares to preserve diversification as people subscribe and redeem will destroy value further.

So, it's simply not worth keeping the fund going.

DAK if I can make a complaint to the fund manager or other UK body as it seems unfair for the managers to close a fund

Funds close, it happens.

with no warning or justification too.

Did you not think that the November factsheet showing the fund size down to £1.6m, or the October factsheet showing under £1.9m, wasn't some sort of warning that the fund was getting perilously small and pretty much unsustainable?

People pulling money out of funds they don't like is a major risk and is why open ended specialist funds sometimes suffer badly in a crisis (compared to, say, a closed-ended fund where you just sell your share to someone else and the fund assets remain unaffected).

Do you, hand-on-heart, really think there is no justification for closing this tiny, inefficient, and uncompetitive fund?

But yes, to answer your question, you can certainly complain to the fund manager if you don't like it. Presumably you didn't appoint an independent financial advisor to identify and recommend this fund for your circumstances, and are just using your own research and knowledge to assess whether it is a good thing to invest in. So, if your own research, knowledge, and luck is not good enough, it is difficult to see who would 'pay you out' or reply to your complaint with anything other than 'sorry mate!'.

diesel100

bowlhead99 wrote: »

According to the year end factsheet http://www.oceanicasset.com.au/download/pdf/monthly_reports/Monthly_Report_Dec_14.pdf , there was only £1m of value in the fund at December. Compared to say JPM Natural Resources which has also haemorrhaged value but is still a billion dollar fund. The market conditions have not made single-country junior mining funds a good place to be.

You simply can't run a fund that's only got a million quid in it. A 1% management fee is £10k. To a manager that's not worth having, and neither is a performance fee when they're so far under the high watermark. Administration, legal, accounting/audit and other costs will cost you several percent of NAV a year and trading small amounts of shares to preserve diversification as people subscribe and redeem will destroy value further.

So, it's simply not worth keeping the fund going.



Funds close, it happens.
Did you not think that the November factsheet showing the fund size down to £1.6m, or the October factsheet showing under £1.9m, wasn't some sort of warning that the fund was getting perilously small and pretty much unsustainable?

People pulling money out of funds they don't like is a major risk and is why open ended specialist funds sometimes suffer badly in a crisis (compared to, say, a closed-ended fund where you just sell your share to someone else and the fund assets remain unaffected).

Do you, hand-on-heart, really think there is no justification for closing this tiny, inefficient, and uncompetitive fund?

But yes, to answer your question, you can certainly complain to the fund manager if you don't like it. Presumably you didn't appoint an independent financial advisor to identify and recommend this fund for your circumstances, and are just using your own research and knowledge to assess whether it is a good thing to invest in. So, if your own research, knowledge, and luck is not good enough, it is difficult to see who would 'pay you out' or reply to your complaint with anything other than 'sorry mate!'.

Thanks for the information and advice.
I understand the points you have raised, and it makes me look up more and take interest in some of the smaller higher risk funds I hold, unfortunately this includes the Junior Funds too (sadly 1 is still promoted by HL's 150 list).
(can foresee another closure ahead )

bowlhead99

HL still have the Junior Oils Trust on their list. NAV at end of February this year was below £15.6 million. http://www.junioroils.com/wp-content/uploads/Junior_Oils_FactSheet_201502_update.pdf
That is over £50million lower than end of February 2011 when it was at £67.5million. http://www.junioroils.com/wp-content/uploads/Junior_Oils_FactSheet_201103_update.pdf

The return of the fund for the one year after Feb 2011 was -27%. The year after that, -22%. Year after that, -12%. Last year, -31%. Cumulatively those losses would reduce fund size by 65%. But because people pull money out of funds that scare them, the problem is exacerbated and overall at Feb 2015 they are managing less than a quarter of the assets they were managing in Feb 2011. It doesn't mean it has necessarily lost three quarters of its NAV per unit just from making bad investments (and given its stated investment strategy, it has pretty much no choice other than invest in junior oil companies...) but is a combination of lower NAV per unit and people pulling cash out to reduce the number of units in existence.

HL say on their write-up:

The oil and gas sector can be heavily influenced by economic factors and investor sentiment, such as the outlook for the oil price and economic growth, as well as the quality and prospects of individual companies. It is an area that can remain out of favour for long periods. The highly specialised nature of the fund means it is a niche holding likely to appeal to adventurous investors looking to add some spice to a well-diversified portfolio.

So it is a niche holding. You should not have it if you don't want risk and it only works as part of a well diversified holding. It sounds like if you have this one and an Australian smallcap mining fund you might not be as diversified as some. It could close and have to sell its assets in a fire sale. It appears on HL's list of 150 funds that they are promoting because at one point it suited them to put it there as being better to promote than something else in its sector (what other junior oils funds are there that would have paid as good commission?).

The fund manager says "We believe that the fund’s model is well positioned to benefit from a general re-rating of over-sold smaller oil shares that have viable operations". Of course, they are not likely to say, "We believe we are screwed with this continuing level of redemptions and we are badly positioned for a recovery".

So, caveat emptor really. FWIW, the number 7 holding in JOT's top 10 is Victoria Oil and Gas, who have operations in Cameroon. I hold them directly and while they have had a lot of missed targets and internal arguments in the past causing serious value destruction compounded by the global oil/gas price environment, I think they are a reasonable hold from their lows of a year ago.