Full Report - Alliance Trust

15
Resources and Basic Industries
Oil, Chemicals and Resources
£m
Tight markets and speculative activity in commodity futures
contributed to rising metal and ore prices. The higher demand for
many base resources is in large measure due to China’s numerous
infrastructure projects. Looking forward, some softening in the pace
of development in China is anticipated, but world economic activity
is likely to remain healthy, helping to sustain demand. In the mining
sector we strengthened positions through additions to Rio Tinto and
BHP Billiton and two relatively new Chinese holdings, Yanzhou Coal
and Jiangxi Copper.
The oil price exhibited a different price pattern. Demand was similarly
strong, but, despite this, prices lagged. An unexpected re-classification
of reserves caused our large investment in Shell to perform
disappointingly. Valuations now reflect many of the specific concerns
that investors hold. It is our belief that Shell’s overall resource base
can still be profitably exploited.
We carried out modest additions to PetroChina, CNOOC, Burlington
Resources and BG Group. In chemicals, we sold ICI and reinvested
into new holdings which included BOC.
Shell Transport & Trading 44.6
BP 42.8
Rio Tinto 15.1
BHP Billiton 14.0
Exxon Mobil 11.2
John Wood Group 10.4
Total 7.3
Air Liquide 4.5
PetroChina 4.1
Schlumberger 3.3
British Vita 2.7
RPM International 2.6
Woodside Petroleum 2.5
Johnson Matthey 2.2
Burlington Resources 2.1
BG Group 2.1
Shin-Etsu Chemical 2.1
Croda 2.1
Linde AG 1.9
BOC Group 1.7
Other Holdings (14) 12.0
Total 191.3
Construction and Building Materials
£m
Despite fears that house prices would go into reverse, the UK housing
market performed strongly. Prices did fall in the higher end markets
of South East England, but the Midlands, the North East, Wales and
Scotland all experienced strong growth. Looking forward, a crash
seems unlikely, but the market is less of a clear one way bet for
house builders. In this context, company strategy is increasingly
important to stock selection, and mergers are also possible. Crest
Nicholson, which is decreasing its dependence on the London market,
is one holding to which we are adding.
Persimmon 14.3
Wolseley 7.2
Aggregate Industries 4.3
Siam Cement 3.2
Lafarge 3.2
Crest Nicholson 3.2
Marshalls 2.9
Anhui Conch Cement 1.6
Other Holdings (3) 3.2
Total 43.1
Building material demand is benefiting from global recovery. A new
holding is Anhui Conch Cement, the largest cement producer in China
which is benefiting from spending on infrastructure. European
demand remains mixed. We reduced our holding in Lafarge following
its rights issue which we believe to have been poorly justified.
Wolseley has also been reduced as its shift towards acquisitions to
achieve growth may increase risk.