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Commodities are blossoming, fund says

01/03/2012 @ 7:09am

The Thrivent Natural Resources Fund (TREFX) has a longer history than its three-month track record might indicate.

In October, Thrivent expanded a fund established in 2005 that focused on real estate to include other real assets, such as energy and commodities. The reason, said fund manager David Francis: The bloom is off the real estate rose, but commodities are still blossoming. (How long had fund existed under previous incarnation?)

"We've become more optimistic on the longer-term story in commodities," said Francis, who has served as head of Thrivent's equity division for the past 11 years and now runs the Morningstar three-star-rated natural resources fund.

The $110 million fund previously invested at least 80% of its assets in companies focused on the U.S. real estate industry, such as office-property developer Boston Properties Inc. (BXP) and retail and industrial property owner Vornado Realty Trust (VNO). Now, the fund aims to invest 80% of its assets in companies focused on natural resources.

The switch has allowed Francis to expand into a wider array of companies, everything from fertilizer makers to real-estate development. Since the change to a broader focus in October, the fund is up 7.1%. Comparatively, the Standard & Poor's 500 has gained 4.6% over the same period.

When including the legacy real estate portion, which Francis also oversaw, over the past three years the fund is up 20%, above the S&P 500's 4.5% return.

Francis, based in Appleton, Wis., still plans to hold about 15% of the fund's assets in real estate. And for now, he is targeting companies that will provide steady returns even if the underlying commodities, such as oil, corn or cotton, are swinging wildly.

The fund will aim to hold 60% of its assets in energy stocks, 8% to 9% in agriculture and roughly 20% in other basic materials.

In energy, the fund is focused on oil and natural gas drillers and other oilfield service providers instead of the producers themselves. With oil back above $100 a barrel, some market analysts are predicting that prices could turn lower in the first half of 2012 before venturing higher through the end of next year.

"As a strategy, we own a lot of pick and shovel type companies," Francis said. "we don't want to own the E&P (exploration and production) guys right now, we want to own the drillers."

Favorites include Baker Hughes Inc. (BHI) and Weatherford International Ltd. (WFT). Both stocks have fallen from their highs reached early in 2011, and those losses accelerated as oil prices in August fell below $80 a barrel on the New York Mercantile Exchange.

"Prices are sufficiently high, though, so you're not going to stop drilling," Francis said.

Additionally, Fracis said, the fund has turned to companies that support higher production in the agriculture sector such as fertilizer maker Mosaic Co. (MOS) and seed maker Monsanto Co. (MON).

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