Monthly Investor Report - April

CQS Natural Resources Grwth&Inc PLC

18 May 2023

 

18 May 2023

CQS Natural Resources Growth & Income plc

(the "Company")

Monthly Investor Report - April

The Company announces the release of the monthly factsheet for April which is now available on the Company's website following the link and a summary can be found below.

https://ncim.co.uk/wp/wp-content/uploads/2023/03/CQS-New-City-CNR-02.23.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; and

·    Potential inflation hedge.

Key Fund Facts¹

Total Gross Assets                              £153.99m

Reference Currency                           GBP

Ordinary Shares:       

Net Asset Value                                  203.30p

Mid-Market Price                                174.75p

Dividend Yield (estimated)                  3.2%

Net gearing⁴                                        11.5%

Discount                                              (14.04%)

Ordinary Share and NAV Performance²

	One Month	Three Months	Six Months	One Year	Three Years	Five Years	Since Inception
	(%)	(%)	(%)	(%)	(%)	(%)	(%)
NAV	-3.2	-15.5	-10.8	-11.3	164.9	79.4	585.5
Share Price	1.9	-14.9	-12.3	-16.9	187.9	92.8	560.4
Benchmark	-2.7	-8.9	11.0	-12.8	65.3	78.3	595.8

Commentary³

Industrial metal prices remained pressured during April as perceived slow down risks, heightened by the collapse or bail out of some US regional banks and Credit Suisse, continued to weigh.

Copper closed April around 5% lower while iron ore lost 12% over the month. Oil was little changed as these concerns were offset by OPEC+ further cutting production quota's by over 1M barrels per day, together with strong demand from China, which reaffirmed the region's post-covid demand recovery. Gold gained 2% as investors sought market protection, whilst weakening economic data reduced market expectations for future Central Bank rate hikes. Below the surface, China's robust 4.5% headline Q1 GDP was buoyed by a domestic consumer rebound which offset softer export markets.

Performance

Including the 1.26p interim dividend the Fund return declined 3.2% in April, reflecting the relatively muted performance of sector equities during the month. Iron ores fell due to weak demand from the fall out of the Chinese property crisis, weighed on Rio Tinto and BHP, where Iron ore is a major component of earnings. The fund does not own these or any Iron ore producers, as we expect Chinese demand to remain soft as a result of weak property, whilst there is little supply response from the major producers to lower pricing.

Galena was the largest detractor to Fund performance with the shares halving during the month after weather related disruption to supplies for completion lead-zinc mine development prompted a deeply discounted equity raise by the company, leading to the share price to reset at this level. This was largely offset by the 33% share price increase registered by gold producer Emerald Resources.

In another case of major M&A in mining, Teck Resources gained 27% following Glencore's offer for the company. After a strong prior month performance, gold equities ended the month marginally lower with little benefit to sentiment from Newmont's increased all share offer for Newcrest Mining Ltd. in what would be world's largest gold acquisition if successful. M&A remains an emerging theme with copper miner Hudbay announcing a $439m bid for Copper Mountain which will take the enlarged entity third largest TSX-listed copper producer, or second largest should Teck be absorbed by Glencore. Importantly acquirers are not being penalised by the market as they have been previously, which should continue to support this M&A theme. We believe many positions in the fund are well placed for this, as they are generally cheaper than larger peers and after cheaper than building the equivalent in this inflationary environment.

Positioning

The fund added to its precious metal miners weighting, noting the strong back drop for the metals themselves and that the miners had materially lagged this move.

Galena management flagged no damage to the site and the Fund participated in the A$15m placing given the deep discount offering an attractive risk reward. The Fund also participated in a small placing by gold developer Calidus after the group indicated mining performance had significantly improved following a slower-than-expected initial ramp-up. During the month the all share acquisition of gold developer Sabina by producer B2Gold completed, whilst the fund's holding in shipper BWLPG was reduced after strong share price performance. Exposure to US onshore oil producer, Diamondback, was also reduced having held up well on an absolute and relative basis despite the recent lacklustre performance of oil. The remaining position of copper miner Capstone Mining was also sold during the month.

Outlook

With China's reopening firmly underway there are encouraging, signs for demand growth, despite some caution from a weaker picture in the West. We continue to believe that energy is the sector most exposed to a remerging China with limited demand declines even if the West slows. We increased the precious metal exposure noting sentiment appears to have lagged the commodity price moves, which also provides some protection to the US banking crisis and US debt ceiling risks.

Apart from copper and mining equities, sentiment towards industrial commodities appears to be anticipating a worsening drag from ever more sluggish developed market outlook adding weight to the expected tempering of interest rate rises beyond summer.

Sector Breakdown⁴

Top 20 Holdings (% of MV)^1,5

Company	% of MV
Precision Drilling Com NPV	5.7
Transocean USD0.01	4.2
Nexgen Energy NPV	4.0
Diamondback Energy USD0.01	3.9
BW LPG USD0.01	3.9
Diversified Energy GBP0.01	3.7
Emerald Resources NPV	3.5
REA Hldgs 9% CUM Pref GBP1	3.3
Euronav NPV	3.3
Vermilion Energy Com NPV	3.0
EOG Resources USD0.01	2.9
West African Resources NPV	2.9
LEO Lithium NPV	2.5
Sigma Lithium Corp NPV	2.5
Talon Metals Corp NPV	2.2
Foran Mining Corp NPV	2.1
Thungela Resources NPV	2.0
Lynas Rare Earths NPV	1.7
Peabody Energy Corp NPV	1.6
Ascendant Resources NPV	1.6
Top 20 Holdings represent	60.5

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. ⁵All 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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