Investing for the future: why this fundie is optimistic on copper shares

Where does this fund manager see copper shares heading in the future?

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Copper shares have been a winning investment for shareholders so far this year. The combination of an increased push towards clean energy technology and a constrained supply has resulted in upwards momentum in the copper price.

Since the beginning of the year, ASX-listed companies such as OZ Minerals Limited (ASX: OZL), Sandfire Resources Ltd (ASX: SFR), and 29Metals Ltd (ASX: 29M) have all rode the copper wave. To the delight of shareholders, this has meant returns in excess of the S&P/ASX 200 Index (ASX: XJO).

Recently, one Sydney-based fund manager shared their optimism for copper shares with investors. In its October report, Perennial Partners highlighted their forecast of a positive outlook for copper in the long term. A key reason for this estimation is the growing push behind the green energy transition.

Do copper shares still have room to grow?

Perennial Partners have been managing money for over 20 years, endeavouring to deliver market-beating returns through its numerous funds. In the October report for the Perennial Value Australian Shares Trust fund, the team shared their take on the reddish-brown metal.

During the month, the fund saw gains of more than 10% in its holdings of OZ Minerals and 29metals. Additionally, South32 Ltd (ASX: S32) gained 1.1% in October after it took a 45% stake in the Sierra Gorda mine in Chile. Despite the strong performance, the fund has maintained its overweight exposure to the materials sector relative to the index.

The fund manager informed its investors that it is expecting a long-term positive outlook for copper shares. This is driven by an underlying increase in the demand for the metal due to the electrification theme. At the same time, Perennial expects supply will remain tight.

Supporting this belief, research conducted by Jefferies analyst Christopher LaFemina, indicated marginal copper production growth in the September quarter. Of the mining giants that have reported production numbers, supply had increased only 0.9% year-on-year.

Sharing in Perennial Partners’ assessment, LaFemina said:

We are bullish copper over the medium term due to growing global demand and underappreciated supply constraints.

In the short term

Copper shares have largely traded sideways since October on demand fears stemming from China. The downfall of property development in the region has weighed on the metal.

China is the world’s largest consumer of copper, with the real estate sector accounting for a significant portion of this use. Uncertainty around how China’s Evergrande fallout will play out has likely compounded these worries.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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