Kontent Review

The manager said he anticipated continuingly high global demand for iron, gold and copper, so has been selling out of his oil-related stocks and into metal mining and production companies.

Mr Payne said he had started to reduce his weighting in energy stocks in the third quarter of 2005, putting the proceeds into base and precious metal stocks.

At the end of October, the portfolio was 27.8% exposed to base metals with 10.8% in precious metals and 60% in energy stocks. The portfolio now has 31.5% in base metals, 22.8% in precious metals and 42.2% in energy. The benchmark MSCI World All Countries Energy and Materials Index now has a 16.5% base metals weighting, with 3.4% in precious metals and 58.6% in energy.

Mr Payne said: “The supply and demand fundamentals for several metals – zinc, aluminium and copper – are in favour of the suppliers because of strong demand from China. We expect growth in the Chinese economy of 9.8% this year. In conjunction with this, we expect good growth in the US, improvement in Germany and Japan to grow by 1% to 2%, possibly higher.”

Gold and other precious metals, meanwhile, had experienced a slight decline in supply in the past two years as few large new mines have come on stream, according to Mr Payne. Besides, he said gold prices had been “climbing the wall of worry”, over higher energy prices, concerns over the US deficit and rising global levels of consumer debt.

In the past month, Mr Payne has increased his holding in Australian zinc producer Zinifex from 1% to 2% of the fund. Swedish zinc producer Boliden has also been boosted from 2% to 4%. Meanwhile, he has also bolstered South African gold miner Gold Fields from 1.5% to 4% and his holding in Australian gold miner Oxiana has also increase from 1.75% to 2.75%.

Mr Payne has mixed views on energy and is marginally underweight oil producers, while favouring oil service companies such as US services company Halliburton and Russian oil pipeline operator Transneft.