India’s Commodity Kings – Unveiling the Top 2 Funds Winning Big

Commodities globally are on a roll with deglobalization and restructuring of supply chains leading to a huge buildup in the construction of new factories across the globe in countries like the USA  and India which are trying to break away from the China-centred supply chains. Electrification of energy along with energy transition is leading to a massive demand spurt in metals such as copper, silver, zinc, lithium, etc.

Electric Vehicles, Wind Turbines, etc. require massive amounts of metals as compared to traditional sources leading to both demand and price increases. Copper has broken through all-time highs. With dollar devaluation through massive money printing gold is also making new records with silver and other precious metals seeing growing demand.

Commodities are the right place to be as inflation is settling at a new higher level with a growing fiscal deficit in the USA and the growth of new industries such as Artificial Intelligence and Renewable Energy.

Finding a good commodities fund in the Indian stock market is difficult as not many AMCs have mutual funds catering to this theme as it is not popular amongst Indian investors.

There are a few commodity funds however they are quite bad for example the ICICI Commodity Fund is a steel and cement fund while the DSP Energy Fund is also not that good with a very high expense ratio.

The Top Two Indian Funds Cashing In on Commodity Boom

1. Quant which is one the best emerging AMCs in the Indian fund management industry seeing most of its MFs beating the benchmarks handily has also come out with a commodities fund in 2023. Quant is considered risky by many as it goes for unconventional portfolio construction but some of its funds have been tremendous performers like Quant Quantametal, Multi Asset Fund, BFSI, etc.

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The fund will invest predominantly in Equity securities of companies engaged in commodity and commodity-related sectors like Oil & Gas, Cement, Power, Chemicals, Sugar, Metals, Mining, Paper, Construction Materials, and Agri products. It can also invest up to 20% in gold and silver ETFs. The fund was launched in Dec 2023 and currently has a small AUM of around Rs.350 crores. This is not surprising considering that people love themes like momentum, defense, and manufacturing which are seeing 1000s of crores in NFO. However, this is a good contra sign as people are not realizing that commodities will be a good theme in the coming decade.

2. Tata Resources and Energy Fund is a decent fund that has a great diversification across chemicals, energy, mining, and materials. The Tata Fund has almost 90% of its fund allocation to the four biggest sectors which are chemicals, materials, mining, and energy. This is very different from the ICICI Pru Comm and DSP funds which are primarily focused on two sectors only. This is what I liked about this fund.

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Also, the fund has done some solid research with more than 30 stocks spread across market caps it has almost 40% to mid-cap and small-cap allocation with good emerging companies like APL Appolo, Ramco Cements, etc. which other funds lacked. The portfolio of this fund has mostly good private blue-chip companies which I liked such as SRF (petrochemicals), PI Ind. (fertilizers), Reliance, etc., and not some boring PSUs such as BPCL which are value destroyers. Also, it has exposure to energy companies like NTPC and large cement like Ultratech, ACC, and others.

Conclusion

The Quant commodities fund can be good in this theme as there is a dearth of options and I think commodities will do well in this decade due to several growth drivers such as clean energy and AI. Tata Resource is the only other good commodity fund. Quant has a good mix of stocks and sectors in my view and is not a lazy portfolio maker like ICICI which has just dumped cement and steel stocks. These are two good funds to have on your watchlist in my view, if you wish to capitalize on the commodity rally.