CQS Natural Resources Growth & Income Plc
Monthly Investor Report - June
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
Stephanie Addison/Dean Plowman
01534 709176 /01534 813967
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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 Facts1
Total Gross Assets £152.56m
Reference Currency GBP
Ordinary Shares:
Net Asset Value 204.16p
Mid-Market Price 170.25p
Dividend Yield (estimated) 3.3%
Net gearing4 9.5%
Discount (16.61%)
Ordinary Share and NAV Performance2
|
| One Month | Three Months | Six Months | One Year | Three Years | Five Years | Since Inception |
|
| (%) | (%) | (%) | (%) | (%) | (%) | (%) |
| NAV | 5.1 | -3.0 | -11.7 | 3.5 | 128.3 | 75.3 | 587 |
| Share Price | -3.7 | -2.7 | -12.6 | -0.2 | 139.3 | 88.3 | 530.6 |
| Benchmark | 2.5 | -7.2 | -6.6 | 6.3 | 37.0 | 63.6 | 563.4 |
Commentary3
Commodities were largely buoyed by the prospects of Chinese stimulus following recent weak domestic and export market data. Falling well below consensus expectations of a 0.4% decline, China's headline trade figures for May showed exports shrank 7.5% yoy in dollar terms due to subdued export demand, adding fuel to such expectations.
Energy commodities broadly performed best over the month, led by a strong bounce in gas prices. The decline in US gas prices to below marginal production costs saw a reduction in drill rig deployments and an tightening supply outlook. Investors also began to look through the seasonal low demand during Q3 and benchmark prices recovered 19%. The resultant improving supply outlook drove more volatile prices in Asia and Europe disproportionately with respective benchmarks gaining 47% and 31% over the month. Crude benchmarks rose over 3% during the month. Thermal coal prices rose alongside this with key Australian prices ending June up 12%. With the US Strategic Petroleum Reserve no longer releasing 1M bopd of oil and OPEC more actively cutting production to balance markets, we have greater conviction it has found a floor level ahead of expected demand growth in 2H23, as China recovers.
Expectations that interest rates may peak were met by further increases from the BOE and ECB. Though the US FED left rates unchanged, which allowed the dollar to ease back, it delivered a hawkish outlook. Gold took its lead from the rise in longer dated rate expectations declining 2.2% as holdings by physically backed ETFs reduced by 1.6Mozs over the month. Rising expectations of Chinese economic stimulus helped bolster sentiment for iron ore and seaborne benchmarks rose 10% over the month. Base metals also rose with copper gaining 3%.
Performance
The Fund NAV rose 5.1% in June more than recovering the prior month decline. Positive contributions were primarily energy related. The share prices of Malian lithium developer Leo Lithium, off-shore driller Transocean and uranium developer NexGen all rising between 19-20% in sterling terms while on-shore driller Precision Drilling, European focused oil and gas producer Vermillion and shipper BWLPG rose between 12-15% in sterling terms over the month. These gains more than offset the drag from Australian gas explorer, Tamboran Resources, which was weighed down by a discounted placing to fund ongoing exploration on its highly prospective asset and also offset the drag from precious metal equities.
Positioning
Trading was minimal over the month. The Fund added to Tamboran Resources participating in the equity placement by the exciting shale gas developer which is applying US techniques on a huge prospective gas resource in Australian.
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. While supply dynamics for all commodities remains constrained given the lack of investment since 2015, energy is generally less discretionary and thus less susceptible to demand declines in a softening economic backdrop. For this reason the Fund continues to hold a larger relative weighting in energy related sectors.
Sector Breakdown4
Top 20 Holdings (% of MV)1,5
| Company | % of MV |
| Leo Lithium NPV | 5.2 |
| Transocean USD0.01 | 5.0 |
| Nexgen Energy NPV | 4.9 |
| Precision Drilling Com NPV | 4.6 |
| BW LPG USD0.01 | 4.3 |
| Diamondback Energy USD0.01 | 3.6 |
| Diversified Energy GBP0.01 | 3.5 |
| Emerald Resources NPV | 3.5 |
| REA Hldgs 9% Cum Pref GBP1 | 3.1 |
| Vermilion Energy Com NPV | 3.0 |
| Euronav NPV | 2.9 |
| EOG Resources USD0.01 | 2.8 |
| West African Resources NPV | 2.5 |
| Talon Metals Corp NPV | 2.4 |
| Sigma Lithium Corp NPV | 2.2 |
| Galena Mining NPV | 2.1 |
| Foran Mining Corp NPV | 1.8 |
| Lynas Rare Earths NPV | 1.8 |
| Thungela Resources NPV | 1.6 |
| First Quantum Minerals NPV | 1.6 |
| Top 20 Holdings represent | 62.4 |
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Sources: 1CQS as at the last business day of the month indicated at the top of this investor report. 2Total 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). 3All 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. 4CQS as at the last business day of the month indicated at the top of this investor report. 5CQS, 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. 6CQS 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. 7All 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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