Risk Management

Risk management is fundamental to any investment. At the Fund level, risk will be managed using a few concepts:

The Fund will generally hold larger positions in the more liquid and established “Large Cap Stocks”. Holdings in less liquid “Small to mid cap stocks” will generally make up a smaller percentage of overall Fund investments. Investments in illiquid seed capital will generally be a smaller percentage again and investments in volatile products such as derivatives are intended to make up a comparatively small percentage of the overall portfolio.

The second risk tool is selective diversification of the portfolio. As explained in the investment objectives, the Fund will be investing in the Global Basic Materials Sector, as such it will not be “diversified” across all global industries or market segments, however, within the Global Basic Materials Sector the Manager will aim to hold a few different Sector exposures. This will reduce the risk of the Fund’s performance being negatively affected by the performance of a specific set of economic or Sector circumstances.

When the Manager forms a view on a particular commodity the Fund will own or short a few stocks in that sector not just one. This will vary because at the start of a bull trend in a commodity sector most stocks typically rise and it is as the trend matures the Manager will be more selective in its stock selection. This strategy also works in a bear market but from the short side.

Management of risk in stock selection amongst producers will be heavily dependant on asset quality, balance sheet and cashflow analysis. Companies will be stress tested against local and global benchmarks.

Risk associated with explorer investment will be managed partly through diversification. Rather than having a large position with 1 or 2 explorers it will typically be spread over, for example, 5 to 7 explorers. Combined with this will be a commodity preference.

Making investment decisions in exploration companies is a complex process. Ore bodies are not evenly deposited or structured. Some key factors the Manager will consider are: grade, location, quality of Management, strategic value to other companies and being aware that the markets can over and under estimate the relevance of drilling results.