TIDMCYN
RNS Number : 3398D
CQS Natural Resources Grwth&Inc PLC
20 June 2023
Cqs Natural Resources Growth & Income Plc
Monthly Investor Report - May
The full monthly factsheet is now available on the Company's
website and a summary can be found below.
https://ncim.co.uk/wp/wp-content/uploads/2023/05/CQS-New-City-CNR-04.23.pdf
Enquiries:
For the Investment Manager
CQS (UK) LLP
Craig Cleland
0207 201 5368
For the Company Secretary and Administrator
BNP Paribas S.A., Jersey Branch
Dean Plowman/Ann-Marie Pereira
01534 813 967/ 01534 709198
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Fund Description
The Fund aims to generate capital growth and income,
predominantly from a portfolio of mining and resource equities, and
from mining, resource and industrial fixed interest securities.
Portfolio Managers
Ian Francis, Keith Watson and Robert Crayfourd
Key Advantages for the Investor
-- Access to under-researched, mid and smaller-cap companies in
the global Natural Resources sector
-- Quarterly dividend paid to shareholders
-- Potential inflation hedge
Key Fund Facts(1)
Total Gross Assets GBP147.68m
Reference Currency GBP
Ordinary Shares:
Net Asset Value 193.88p
Mid-Market Price 174.50p
Dividend Yield (estimated) 3.2%
Net gearing(4) 9.4%
Discount (10.00%)
Ordinary Share and NAV Performance (2)
One Month Three Months Six Months One Year Three Years Five Years Since Inception
(%) (%) (%) (%) (%) (%) (%)
NAV -4.6 -12.7 -19.7 -16.0 139 63.1 553.7
Share Price -4.2 -7.9 -16.4 -17.0 164.3 79.4 532.5
Benchmark -6.9 -7.6 -9.9 -18.5 40.8 58.4 547.5
Commentary(3)
Commodity prices continued to decline as data showed
disappointing progress in China's economic recovery following its
post-covid reopening. Not helped by the drag of soft demand for its
exports, official PMI numbers for May showed a worse-than-expected
contraction in manufacturing. The ongoing regional property crisis
also continued to weigh with over leveraged local government
financing vehicles compounding poor sentiment, a key reason for why
the fund continues to hold a low weight in base metals and no iron
ore, believing there will be a better entry point in the future..
The outlook for persistent inflation and knock-on lift in US
interest rate expectations also impacted sentiment as the dollar
index strengthened during the month. Metal prices slid with copper
and iron ore losing around 5% while steel inputs nickel and zinc
dropped 20% and 15% respectively.
Energy commodities were also pressured by the softer macro
backdrop. Benchmark crude prices fell approximately 10% with softer
demand met by a continued supply of discounted Russian product,
primarily destined for India and China given Europe's $60/bbl price
cap. This has taken share directly from OPEC, who will likely apply
pressure for greater compliance by Russia to fall in line with
reduced quotas previously stated. In similar vein US gas prices
lost 10%. EU and Asian price premiums continued to fall with
weaker-than-expected regional demand, warmer weather and ample
stocks causing near dated futures to fall 30% and 20% respectively.
The US the rig count is now rolling over with private producers
also cutting investment as a result of tighter lending conditions.
The fund continues to hold a larger weight in energy relative as we
believe there are more supportive drivers of a tightening market
than with base metals, whilst valuations are already implying lower
commodity price.
Fears of the US debt default dissipated as an extension on
ceiling negotiations was voted through, largely as expected. Gold
slipped a modest 1% and continues to hover just below the $2,000/oz
level. Gold mining equities remain well below where they traded
when gold was last at this price, whilst we note that inflationary
pressures that have detrimentally impacted margins and contributed
to the relative underperformance are now easing. The fund has
increased its precious metal weight to 20%.
Performance
The Fund NAV slipped 4.6% in May as recession and some US dollar
strength weighed on sentiment. Against the broader commodity market
softness uranium miners, which represent 5.9% of Fund net assets
benefitted from the sustained upward momentum in U3O8 prices which
rose 3% in May. Latterly the uranium equities also received a boost
at the start of June as US enacted policies in support of the US
nuclear industry confirming legislation to extend the lives of
existing reactors and commentary highlighting the need to assess
requirements for much needed conversion and enrichment capacity to
bolster the region's energy security from current deficiency in
these activities. Malian lithium developer Leo Lithium began its
rerating towards peers, increasing 69.5% in May, making a
significant positive contribution to performance after signing a
cooperation agreement and securing funding from China's Gangfeng.
The substantial 60% rebound in Chinese benchmark lithium carbonate
prices, back towards EU and US levels also helped lift sentiment in
this sector.
Positioning
Given the outlook for declining supply from key producer regions
combined and conscious of the short-term earnings sensitivity to
changes in rig utilisation, the Fund reduced the size of the
holding in of Precision Drilling. Some profits were also taken on
the shipping position via the sale of some BWLPG equity following a
strong performance which offset the drag from Precision Drilling
during the month. The Fund added to the precious metal exposure via
the purchase of Karrora Resources, an Australian gold producer with
some nickel optionality, believing stocks offer value and
protection in the current economic climate.
Outlook
Despite recession concerns we note supportive supply side
discipline remains a fundamentally supportive factor for investment
in the sector and is translating into much improved Fund revenue.
In addition, the rising prospect of Chinese stimulus, to counteract
slowing exports, should help support commodity demand in the second
half of the year.
Sector Breakdown(4)
Top 20 Holdings (% of MV)(1,5)
Company % of
MV
Leo Lithium 4.5
Transocean USD0.01 4.4
Nexgen Energy NPV 4.3
Precision Drilling Com NPV 4.3
BW LPG USD0.01 4.0
Diamondback Energy USD0.01 3.8
Diversified Energy USD0.01 3.6
Emerald Resources NPV 3.5
REA Hldgs 9% Cum Pref GBP1 3.5
Euronav NPV 3.3
Vermilion Energy Com NPV 2.8
EOG Resources USD0.01 2.8
West African Resources NPV 2.6
Sigma Lithium Corp NPV 2.2
Talon Metals Corp NPV 2.1
Lynas Rare Earths NPV 2.1
Galena Mining NPV 2.0
Foran Mining Corp NPV 1.9
Tamboran Resources NPV 1.8
Karora Resources NPV 1.7
Top 20 Holdings represent 61.2
Sources: (1) CQS as at the last business day of the month
indicated at the top of this investor report. (2) Total return
performance net of fees and expenses as at the last business day of
the month indicated at the top of this investor report. The
Company's investment benchmark is 80 per cent. Euromoney Global
Mining Index (sterling adjusted) and 20 per cent Credit Suisse High
Yield Index (sterling adjusted). Performance data is calculated
from 1 August 2003 (total return basis). (3) All market data
sourced from Bloomberg unless otherwise stated. All returns quoted
in local currency unless otherwise stated. The Company may since
have exited some or all of the positions detailed in the
commentary. (4) CQS as at the last business day of the month
indicated at the top of this investor report. (5) CQS, as at the
last business day of the month indicated at the top of this
investor report. For methodology details see Article 4(3) of
Directive 2011/61/EU (AIFMD) and Articles 6, 7, 9 and 10 of
Delegated Regulation 231/2013. (6) CQS as at the last business day
of the month indicated at the top of this investor report. For
methodology details see Article 4(3) of Directive 2011/61/EU
(AIFMD) and Articles 6, 8, 9, 10 and 11 of Delegated Regulation
231/2013. (7) All holdings data are rounded to one decimal place.
Totals may therefore differ to sum of constituents. These include
historic returns and past performance is not a reliable indicator
of future results. The value of investments can go down as well as
up. Please read the important legal notice at the end of this
document.
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