blackrock now holds 5%, page-17

This from the Australian today. Re assuring, i guess my only slight concern with IDL is that coal is dirty and that eventually it will be used less for energy...lucky the chinese love the stuff

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BlackRock global resources fund rates coal top pick

Devon Maylie From: Dow Jones Newswires

December 29, 2009 7:31AM

GETTING a lump of coal this holiday season could be good thing, or so Dan Rice, who manages BlackRock's Global Energy & Resources Fund (SSGRX), believes.
Mr Rice invests in natural-resource stocks to play commodity prices, targeting sectors where the stocks are discounting a future price below what the fund forecasts.

Coal has the best outlook, he said.

"We look at the longer-term commodity price environment expectation," Mr Rice said. Using the Central Appalachian coal price, he forecasts coal prices at $US75 a tonne in the longer term, whereas he said stocks are discounting prices at $US57/tonne. Prices are currently around $US50/tonne.

Coal prices are down from the record high of $US140/tonne hit in May 2008, but even if they rise to $US75/tonne from current values, that still gives the fund's investment a lot of upside.

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"The next couple of years, (coal) stocks will triple if our price forecast is correct," Mr Rice said. "It has the biggest upside in our portfolio."

He acknowledges there are some risks to his optimistic forecasts, namely climate change and efforts to curb air pollutants.

Regardless, he maintains that "coal prices will be relatively strong in the next couple of years," because demand from countries like China will remain robust, he said.

The fund estimates demand for coal will grow between 1.5 per cent and 2 per cent annually and supply will increase by 1 per cent, which could lead to a shortage condition by the end of next year, Mr Rice said.

The top holding in the SSGRX fund is Massey Energy , which accounted for 7.5 per cent of the fund's investments as of the end of November.

While the fund tends to focus on small-cap companies, it does have some major mining stocks like BHP Billiton, Rio Tinto and Vale SA .

Of the $US1 billion ($1.13bn) in assets under management in the SSGRX, 25 per cent is in coal stocks, 15 per cent in precious metals and 60 per cent in energy. The average holding in the fund is over three years.

As of December 27, the SSGRX was up about 83 per cent from the start of the year and had a five-year average annual return of 13.2 per cent, according to Morningstar. The fund has outperformed the S&P 500 Index by about 55 percentage points so far this year, and has done 36 percentage points better than the funds in its category, Morningstar data show.

Meanwhile, gold and crude oil prices are up around 40 per cent from the start of the year while copper prices have doubled.

Looking at some of the fund's other long-term commodity price forecasts, copper is seen at $US2.25 a pound to $US2.50/pound, whereas stocks are discounting $US1.80/pound to $US2/pound, Mr Rice said.

For oil, stocks are discounting $US65 a barrel to $US70/bbl, and the fund expects $US85/bbl to $US90/bbl a barrel long term.

Mr Rice said predicting future prices of metals is harder than oil and coal because metals are much more volatile on a cyclical basis and gold relies on currency expectations.