Terra’s natural resources fund generated a 74.1 per cent return, after fees, for its investors in 2017, making the most of the strong momentum across the resources sector. The performance meant that those who invested at the fund’s inception 7½ years ago have now seen their money appreciate by more than 500 per cent.
The family pedigree of the fund’s chief investment officer, Jeremy Bond, previously helped open doors and grab headlines for Terra, but the fund’s performance of recent years is helping him make a name for himself.
Mr Bond told The Australian Terra was going through the regulatory process that would allow it to secure funds from retail investors. At present, the fund is limited to wholesale investors.
The move, which Mr Bond expects to be completed by the end of February, would expand the pool of potential funding available to Terra at a time when the junior resources sector was enjoying buoyant conditions.
“We were getting a lot of inbound interest from retail. We were getting multiple registrations of interest a day and there’s no reason not to (open the fund to retail investors),” Mr Bond said.
“The fund is of a size now where it’s the right time to start taking retail money.”
The resources fund has $89 million under management, but Mr Bond hopes to eventually grow the fund to as much as $300m.
While 2017 was a good one for the resources sector — the ASX Small Resources index generated a 37.9 per cent return — Mr Bond is particularly pleased with his fund’s performance through the lean years of the mining downturn.
That 500.5 per cent return since inception contrasts with a 36.8 per cent fall in the Small Resources Index over the same period. “We’ve weathered the storm. Putting in good performance during a poor market gives us comfort that we’ve done the hard yards,” he said.
“It was harder to raise money in 2013 and 2014. The market looked pretty bleak and it was challenging because there wasn’t any immediate light at the end of the tunnel. You tend to have long resource bear markets and bull markets because it takes a long time to build a mine, so we think we’re in for a good few years.”
Its best investments in the past year have come primarily from the battery materials space, such as Cobalt One and eCobalt Solutions and lithium duo Tawana Resources and Lithium Power International. It also backed new zinc miner Red River Resources.
Mr Bond is still a big believer in the outlook for cobalt over the coming year, given the challenge of bringing on new sources of the material. He was an early investor in the lithium space and continues to believe in the long-term demand growth, but is mindful about the future impact from a big ramp-up in supply already underway.
“As with any commodity, when there are elevated prices you do see a supply response. We’re moderating our holdings on the lithium side a little bit,” he said. “Certainly you want to be selective on the lithium stocks you’re looking at. There are a lot of companies that are a long way off production and if you’re going to be buying a lithium stock you want to be buying one that’s in production or close to production, and one that has locked in favourable prices for the near term.”
While Mr Bond believes there’s still plenty of momentum behind the resources sector, he said there were some stocks at the junior end of the market that had run too hard.
“Markets are favourable, the dynamics of resource stocks are favourable, but particularly in the really small-cap space there are some companies that have some really questionable valuations that just don’t make sense.”