Glencore (LSE:GLEN) (Switzerland), one of the world’s largest commodities and trading companies, was the top contributor for the quarter, returning 70%. Concerns about weaker-than-expected demand for copper in China drove the price of commodities lower last year and negatively impacted Glencore’s share price. The market overreacted to the weaker demand, and we used the opportunity to buy shares at what we believed to be attractive prices. Glencore has taken action to counter the negative market impact. During the quarter, investors reacted positively to news that the company delivered on recent guidance for fiscal 2015, as well as to management’s aggressive and well-specified plan to deleverage the company’s balance sheet. Management has indicated that the debt restructuring plan and asset sales are progressing as expected. Despite the continued weak commodity prices, Glencore should still be able to generate $3 billion in free cash flow in fiscal 2016, which will aid in debt reduction. Additionally, management noted that they are seeing stronger demand for commodities across China than many were expecting. We believe that the prices for Glencore’s primary commodity exposures are low relative to fundamental value and will rebound over time. As a result, our investment thesis remains intact.
From David Herro (Trades, Portfolio)'s Oakmark International Fund: First Quarter 2016 Commentary.
