A lot of Australia's fund managers have bought into leading mining stocks such as BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) over the past year and probably made some good paper profits in doing so on the back of rising commodity prices, dividends, and profits.
However, Melbourne-based fund manager Yarra Capital has taken a slightly contrarian view to the mainstream by revealing that it's continuing to 'reduce' its "underweight" position in the miner in the wake of a mining catastrophe in Brazil involving Vale SA that saw more than 300 people killed.
On its decision Yarra Capital commented: "While the Vale failure has only a small impact on the global seaborne market (less than 1% of supply), it creates uncertainty about Vale's other Brazilian operations and puts into question around 5% of global supply. However, we remain underweight the company as new supply comes onto the market from elsewhere and China's demand wanes from strong, stimulus-induced levels. We continue to monitor BHP's ability to support earnings through lower costs – cost inflation is building and we believe capex will need to increase to more historic levels."
This afternoon BHP shares are near multi-year highs at $39.50 and taking some profits on it like Yarra Capital might be a smart move given the supply and demand dynamics referenced and cyclical nature of commodity prices.
BHP shares aren't cheap right now, but these 3 blue chips are….
