Monthly Investor Report - July

CQS Natural Resources Grwth&Inc PLC

23 August 2023

 

CQS Natural Resources Growth & Income Plc

Monthly Investor Report - July

The full monthly factsheet is now available on the Company's website and a summary can be found below.

https://ncim.co.uk/wp/city-natural-resources-high-yield-trust

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

01534 813 967

-----------------------------------------------------------------------

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                              £159.59m

Reference Currency                           GBP

Ordinary Shares:       

Net Asset Value                                  214.67p

Mid-Market Price                                180.50p

Dividend Yield (estimated)                  3.1%

Net gearing⁴                                        10%

Discount                                              (15.92%)

Ordinary Share and NAV Performance²

	One Month	Three Months	Six Months	One Year	Three Years	Five Years	Since Inception
	(%)	(%)	(%)	(%)	(%)	(%)	(%)
NAV	6.3	6.5	-10.00	2.5	117.4	92.3	630.1
Share Price	7.9	3.0	-12.3	7.7	122.6	103.8	580.3
Benchmark	4.0	-0.8	-9.6	10.9	35.4	69.7	590.3

Commentary³

Commodities were stronger over July, supported by optimism on Chinese financial stimulus in response to continued soft economic data. Risks remain around China's economy and its property sector, which is why the fund remains weighted to Energy over Base Metals, as it is not clear on how material property stimulus will increase Base Metal demand. The fund still holds no Iron Ore for the same reason.

Brent Oil gained 13.5%, as OPEC+ announced an extension to voluntary production cuts for a further month at least. Notably Saudi Arabia and Russia offered 1million barrels per day and 0.5 million barrels per day output reductions respectively.

The improved sentiment also helped buoy copper which gained 6% over the month. Sentiment for precious metals remains muted with gold prices rising a more modest 2%, although Silver increased 9%. Regional gas prices remained under pressure with US benchmarks remaining below marginal production costs, a factor which is driving a reduction in rig deployment which will see some level of supply correction to balance the market.

Performance

Including the final quarterly dividend per share of 1.82p the Fund returned 6.3% in July. Performance was driven by strong contributions from energy related equities. The improvement

In particular, US land driller Precision Drilling and offshore driller Transocean made strong contributions, followed by US onshore oil and gas producers EOG and Diamondback. These shares rose 34%, 24%, 15% and 11% respectively in sterling terms over the month.

Weighing on performance, pre-production base metal names were softer. For example nickel explorer Talon Metals declined 23% in sterling terms over the month. Similarly, lead-zinc developer Galena also acted as a drag over the month with its quarterly update indicting activity on the mine's ramp-up was improving after some rainfall delays earlier in the year. The valuation gap between producing and non-producing or smaller capitalised names is looking near extreme levels and the fund continues to be opportunistic in adding to depressed names we believe should catch up to or be taken out by producing peers over time.

Positioning

Trading was minimal over the month. Some of the Fund's position in Euronav was switched into Frontline given a better risk-reward profile.

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
Transocean USD0.01	5.9
Precision Drilling Com NPV	5.9
LEO Lithium NPV	5.2
Nexgen Energy NPV	4.7
BW LPG USD0.01	4.4
Diamondback Energy USD0.01	3.8
Diversified Energy GBP0.01	3.6
Emerald Resources NPV	3.5
Vermilion Energy COM NPV	3.1
EOG Resources USD0.01	3.0
REA Hldgs 9% Cum Pref GBP1	2.9
West African Resources NPV	2.4
Euronav NPV	2.3
First Quantum Minerals NPV	2.1
Foran Mining Corp NPV	2.0
Sigma Lithium Corp NPV	2.0
Talon Metals Corp NPV	1.7
Lynas Rare Earths NPV	1.7
Calibre Mining Corp NPV	1.6
Galena Mining NPV	1.6
Top 20 Holdings Represent	63.4

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.

 

END