Investors have been making the same mistake over the past six months, says Lowell Resources Fund’s John Forwood, whose comments echo those made recently by Merchant’s Andrew Chapman.

According to the veteran pair, who spoke with Reach Markets independently this month but uttered the same nine words, far too often in this period of inflationary concerns and interest rate rises, fundamentals are being overlooked and “the baby is being thrown out with the bathwater”.

“The past 12 months have been a tale of two halves,” Mr Forwood told Reach this week, ahead of his appearance on our Meet the Fund Manager session on Friday where he will share his favourite stocks, investment strategy, market insights and more. (To book yourself in, click here.)

“The six months through to April 2022 was a fantastic run-up; a continuation of the run-up that started from the COVID crash in April 2020.

“In the six months since, there’s been a serious downturn as a result of inflation causing the US Fed to commence its rate hike tightening cycle. Everything has been heavily affected across the board, including in the commodity space and the resources equity space.

“My view is that over the mid to long term the fundamentals for many commodities remain excellent, despite the serious slowdown in China. But those overriding fundamentals have been ignored in the last six months. It’s as if the baby’s been thrown out with the bathwater.”

Lowell Resources Fund (ASX: LRT) – one of the few long-term investment funds that offers exposure to the junior resources sector in both minerals and energy across Australia and globally in unlisted and listed companies – has tweaked its strategy to shift with the market.

Investment trends and opportunities

“We’ve been increasing our exposure to the energy space as a result of the energy crisis. We’re also taking advantage of opportunities to increase our exposure to copper and lithium,” the Chief Investment Officer said, noting the “good vs evil” tug-of-war between renewables and fossil fuels.

“The transition from fossil fuels to renewables is not happening as quickly as everyone hopes. And there’s a lot of macroeconomic factors too that have driven demand for fossil fuels back up.

“So in the short term, we anticipate massive demand for old fossil fuels, but in the mid to longer term we are looking at commodities required to move to a renewable energy future such as copper, nickel, cobalt, graphite and aluminium.

“That’s why we want to increase our exposure to copper – and we’re no lone rangers in doing so. Everyone from BHP to the smallest investor wants to invest in a copper producer in a safe, preferably first-world, jurisdiction.

“By the same token, we have a very heavy exposure to gold and part of the reason for that is that we like the outlook for gold and we have for quite some time.

“Another reason we are open to investing in gold projects is because we focus on the small end of the sector where, although these companies may have restricted access to capital, building a gold mine is within the realms of possibility for a lot of them.”

Market outlook for the next six months

“In the short term, everyone’s trying to pick the bottom and that is particularly tough. But one possible outcome is that the US and other parts of the world will enter a recession, which may be sooner and perhaps harder than people expect,” Mr Forwood said.

“That would cause the US Fed to curtail its rate hike cycle earlier than expected – it could happen in the next six months easily – and that would be a case of ‘bad news is good news’.

“It would be very positive for the market in general, and the resources sector would benefit as well. That’s quite a possible, if not a probable, outcome.”

Join Lowell Resources Fund’s John Forwood this Friday, 21st October at 12pm (AEDT), on our The Insider: Meet the Fund Manager webcast to hear him talk about his favourite stocks, investment strategy, market insights and more. There will also be an opportunity to ask questions during the session. To book yourself in, click here. 

Past performance is not a reliable indicator of future performance.