Time to snap up miners after sell-off?

Top performing UK fund managers including Ed Legget at Standard Life Investments and PSigma’s Bill Mott have been buying up mining stocks in recent weeks following a major market sell-off.

The mining sector has been one of the main victims of the recent equity market downturn, with share prices diving by around a quarter across a sector which now constitutes 12% of the FTSE 100.

The big four – BHP Billiton, Xstrata, Rio Tinto and Anglo American – have lost an average of 24.9% in the past three months.

However, managers are now upping their weightings to the highly volatile sector, arguing share prices have fallen too far considering the outlook for global growth remains positive.

Legget, running the £395m SLI UK Equity Unconstrained fund, has been topping up positions in his portfolio across his holdings in Rio, Xstrata and Vedanta, as well as Canadian miner First Quantum.

“They are cyclical stocks, but if China can keep growing at between 5%-10% for the next five years, it will be a pretty attractive market to sell into,” he said. “We still see value so I have added to names.”

Legget has increased his positions in Xstrata and Rio, with total exposure to the mining sector around 13.5% in the Unconstrained fund.

“Underlying demand looks OK, as does global growth, and prices of commodities should remain high as it is hard to get supply on stream.”

Mott, running the £356m PSigma Income fund, has also taken advantage of price falls to buy into a sector usually neglected by income funds.

“In the recent market turmoil, we have taken advantage of sharp falls in the mining sector to raise our commodity exposure,” he said.

“From near zero, our weighting is now 2.5%, with Rio (1.2%) and BHP (0.8%) added to the holding in African Barrick Gold (0.5%).

“It is simply recognition of the recent dislocations in share prices.”

Tom Ewing, manager of the £459m Fidelity UK Growth fund, is also holding Rio, Randgold Resources, Xstrata and Vedanta.

Including Randgold, partly a play on the gold price, he is overweight the mining sector, with about 14% of the fund invested.

He said investors avoiding miners must now price in a collapse in demand.

“To be bearish on these stocks now, you have to think metals prices fall below long-run marginal costs, and that only happens if demand falls off a cliff, or new supply comes on-stream,” he said.

However, Legget warned investors it will not be a smooth ride, with miners hitting his performance – and that of peers including Richard Buxton at Schroders who holds 9.5% of his UK Alpha Plus fund in the sector – in the short term.