There are positive signs that the natural resources industry is recovering from the difficulties seen over recent years. As at 30 September 2016 (the most recent data available), the PrEQIn Natural Resources Index* had seen only its second increase in returns since June 2015, rising 3.3 points to 118.5.
The recent recovery in the PrEQIn Natural Resources Index is in contrast with its performance over the previous two years: following commodity price declines in June 2014, the index fell from 135.9 in Q3 2014 to 110.8 in Q1 2016. However, this fall was not at the same level as the declines seen in the S&P Global Oil Index TR over the same period (-31.0 points).
Despite the recent uptick in the public index, the gap between the two indices has increased from Q2 2016; the S&P Global Oil Index TR stands at 81.4 (as at 30 September 2016), suggesting that the decline in oil prices has had more of a lasting impact on the public market than on unlisted funds. Overall, the PrEQIn Natural Resources Index has performed significantly better and been less volatile than the public index since the financial crisis.
At the end of 2016, investors were confident in the future performance of their natural resources investments, with 35% of institutional investors surveyed by Preqin expecting the asset class to perform better in 2017 than it did in 2016, while just over a fifth thought it would perform worse. Fund managers will look to continue delivering positive returns in order to maintain LPs’ optimistic outlook; macro events, such as the balance between increased US shale production and OPEC’s nine-month extension of oil production cuts, will be monitored closely for effects on unlisted natural resources fund performance.
*The PrEQIn Natural Resources Index compares the average returns earned by investors in their natural resources portfolios, based on the actual amount of money invested in each partnership. The Index is calculated using data from Preqin's Natural Resources Online on quarterly cash flow transactions and NAVs reported for over 400 individual unlisted natural resources partnerships – these funds have raised over $380bn in capital from institutional investors.