Monthly Investor Report - May

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 Facts¹

Total Gross Assets                              £147.68m

Reference Currency                           GBP

Ordinary Shares:       

Net Asset Value                                  193.88p

Mid-Market Price                                174.50p

Dividend Yield (estimated)                  3.2%

Net gearing⁴                                        9.4%

Discount                                              (10.00%)

Ordinary Share and NAV Performance²

	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

Commentary³

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 Breakdown⁴

      

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: 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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