JP Morgan Natural Resources fund

Sheridan Admans, investment research manager at The Share Centre, explains the pressures the Euro Zone crisis is having on commodities and highlights the long term potential of the JP Morgan Natural Resources fund.

"For most of 2012 energy and hard commodities, gold aside, have been weaker as many European economies slip back into recession and even Germany, the power house of Europe, has seen a slow down in growth. This has also so had an impact on China as weaker demand from Europe and the credit crisis continues to constrain money supply.

"However, over the long term the emerging market growth story should continue to offer potential for investors. As these economies develop infrastructure to compete in the global market, this is likely to have an impact on the demand for commodities in the years to come. However, the volatility the sector exposes investors to is not going to go away as the credit crisis rumbles on.

"In the short term this sector could get a boost with expectation that the U.S Federal Reserve, European Central Bank and the Chinese are all preparing to provide some monetary stimulation, which we know helped boost this asset class in 2009 and 2010.

"As returns have fallen and pessimism is fairly high, an investor looking for exposure to this sector might consider now a good entry point. The JP Morgan Natural Resource fund fell 29.74% in 2011 and 11.14% so far this year as the economic markets remain unstable driving commodity investment lower.

"Commodity valuations are looking better than they have for sometime, so taking the long-term view of five years plus, investors should see some rewards from investing in a fund that has exposure to this sector.

"This fund invests in a diversified portfolio of companies that are exposed to global resources and energy. The fund invests across three spectrums, with the portfolio roughly divided between gold, base metals and energy. It holds only equities and does not invest in direct commodities or exchange traded funds.

"Investments tend to have a bias towards small and mid-cap companies with the fund aiming to help reduce market volatility by holding positions in 250-300 companies throughout their life cycle, from discovery, pre-production to reserve definition.

"Investors should note the fund will always have a tougher time in a cyclical downturn because of its focus on smaller and mid-cap stocks."