Goldman, Templeton BRIC funds slammed in commodities selloff

Emerging-markets mutual funds ended last week down 5.7%

May 9, 2011 @ 10:43 am

Emerging-markets funds managed by Goldman Sachs Group Inc. and Franklin Resources Inc. were among the U.S.-registered mutual funds that fell the most in last week's commodities selloff.

The $831 million Goldman Sachs BRIC Fund and the $825 million Templeton BRIC Fund, which focus on Brazil, China, India and Russia, both ended last week down 5.7%. The funds, from New York-based Goldman Sachs and Franklin Resources in San Mateo, Calif., were the biggest losers among diversified equity funds with more than $500 million in assets and at least 20% in energy or basic materials stocks, according to data compiled by Bloomberg.

Commodities plunged last Thursday as investors accelerated sales following year-to-date gains through April of more than 23 % for silver, oil, gasoline and coffee. The Standard & Poor's GSCI index of 24 commodities sank 6.5% in the biggest one-day drop since January 2009, bringing its loss this week to 9.9%.

“It was a train wreck waiting to happen,” Michael Mullaney, portfolio manager at Boston-based Fiduciary Trust, said in a telephone interview. Speculation drove commodity prices well above reasonable levels, “and we are going to see it shake out some more before we get back to normal prices,” said Mullaney, who helps manage $9.5 billion.

Oil tumbled 8.6% last Thursday, the most in two years, to $99.80 a barrel. Silver dropped 8%.

The Dow Jones BRIC 50 Index declined 5.1% from April 28 through last Thursday.

Oil fell 2.6% last Friday to $97.18 a barrel, the lowest close since March 15. Silver dropped 2.6% to $35.29, capping the week's plunge at 27%, the biggest since at least 1975.

‘New Risks'

The leaders of the four countries plus South Africa, a group known as the BRICS, said last month that excessively volatile commodity prices pose “new risks for the ongoing recovery of the world economy.”

The $726 million DWS Latin America Equity Fund, managed by the funds unit of Frankfurt's Deutsche Bank AG, fell 5.4 % last week. Boston-based Fidelity Investments' $5.46 billion Canada Fund lost 5.3%, and the $1.4 billion FPA Capital Fund, run by Los Angeles-based First Pacific Advisors LLC, dropped 4.6%.

Mutual funds and exchange-traded funds dedicated to commodities, including index-based products, suffered steeper declines. The ProShares Ultra Silver ETF, designed to return twice the daily performance of silver, plummeted 51% last week. Non-leveraged silver ETFs fell about 30%.

Bill Miller, manager of the $3.94 billion Legg Mason Capital Management Value Trust, said in an April 19 letter to investors that he saw little value in commodities. He pointed to research from Stifel, Nicolaus & Co. showing that commodity returns relative to stock returns were at a 200-year high on a rolling 10-year basis.

‘Cyclical' Returns

“One thing is clear from the analysis of long-term commodity returns: they are cyclical,” Miller wrote.

Open interest in silver futures has tumbled about 15% since the Comex exchange in New York began raising margin requirements on April 25. Futures on Brent crude, crude oil, heating oil, gasoline and natural gas plunged more than 6.9% last Thursday.

Crude oil dropped below $100 a barrel for the first time since March 17. Copper futures slumped 3.3%, falling below $4 a pound for the first time in five months. Among agricultural commodities, cocoa, cotton, corn and weak retreated more than 2.3% in futures trading.

Jack Ablin, chief investment officer for Chicago-based Harris Private Bank, said commodity prices would eventually resume their climb.

“I don't think we have lost the tail wind,” Harris, who helps manage $55 billion, said in a phone interview. “They may have moved up too far too fast, but the long-term underpinnings for higher prices are still in place.”

--Bloomberg News--

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