Swiss and Global’s Evelyne Pflugi has introduced water stocks as a safe haven play in her Julius Baer Natural Resources fund.
Pflugi, who co-manages the fund with Roberto Cominotto, has made a number of changes to the portfolio since they took over in April this year – including bringing water in as a key investment theme.
The fund managers highlight the shale revolution is one way to play the natural resource space, as large quantities of water are used in the extraction process of shale gas.
Pflugi says: “Shale gas, the liquified natural gas plays a big part in the sector. In the metals and mining space we have 30 per cent exposure, agriculture 50 per cent and what makes it a lot different from our peers is that we have added water as the fourth natural resource to the fund.”
She explains: “Why did we add water? We saw that actually in all these places, especially in the shale gas theme and the metals and mining space, water is a big problem. In agriculture, water infrastructure – getting water where it is needed – is a big problem and there are very good companies emerging in this space that you can play these themes.”
So far, water has been a positive contributor to the fund, particularly stocks from the water equipment sector. The fund holds Mueller Water and Ebara in this area of the market.
Pflugi says: “We want companies that are driven by water as a natural resource. Water that is used in the natural resources space in the commodity cycle or supply chain.”
She explains the sector allocations are not fixed.
“In the fund some sectors are clearly more defensive, for example the MSCI energy or water index. What this allows is in macro uncertainty where we can’t find any mining stocks or agriculture stocks we want to be exposed to, we have a safe haven to go to which is the water space,” says Pflugi.
Pflugi is confident she has “picked the right strategy” and says the manager now have to pick the correct stocks and move in and out of the sector that is going to be the difficulty.
“There are a lot of opportunities in the water space and a very nice defensive way to play the natural resources space,” adds Pflugi.
The JB Natural Resources fund has also added recent positions in Rio Tinto and Glencore and sold fertilizer companies ICL and Phosagro. Pflugi says she is looking to add African Minerals to the fund.
In the energy sector the fund sold Marathon Oil and refining company Valero. It took profits with water utility company Severn Trent.