As we explained last week, one of the most fascinating sectors is the Association of Investment Companies’ Commodities & Natural Resources sector because of the diversity of investment styles, size of funds, type of assets and mandates that the managers in this sector follow.
We’re going to look at three funds in greater detail to showcase the sector.
The Commodities & Natural Resources sector consists of investment trusts and closed-ended funds that focus on companies involved in natural resources, energy, mining and agriculture. These funds provide investors with exposure to commodities, which can act as an inflation hedge and a way to diversify from traditional equity markets.
The sector has seven funds, but these are very different in mandate and approach.
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1. BlackRock World Mining [LON:BRWM]
The largest fund in the sector is BlackRock World Mining, with assets of £1.2bn according to the AIC. World Mining is one of two funds from BlackRock in the Commodities & Natural Resources sector, with BlackRock Energy and Resources Income [LON:BERI] the other offering from the American asset management house.
The fund is a sector-specific investment vehicle focusing on the global mining and metals industry. Its primary objective is to maximise total returns by investing at least 70% of its total assets in the equity securities of mining and metals companies. These companies predominantly engage in the production of base metals and industrial minerals, such as iron ore and coal. Additionally, the fund may invest in companies involved in the extraction of precious metals like gold and silver, though it does not hold physical metals.
BlackRock World Mining is co-managed by Evy Hambro and Olivia Markham. Hambro is head of BlackRock’s Thematic and Sector investing and runs BlackRock’s Natural Resources equity team. He’s been with the company for 30-years having been a manager with Mercury and the Merrill Lynch Investment Managers, which were acquired by BlackRock in 2006. He has a background in agriculture.
Markham is a specialist in gold and has experience of the mining sector. She has been with BlackRock since 2011, moving from UBS where she was head of the European Mining team. She also worked in M&A with mining giant, BHP Billiton [LON:BHP].
Investing in a range of sectors
The fund is benchmarked against the MSCI ACWI Metal & Mining index, and the trust invests in a range of sectors, with the aim of building a diversified portfolio and covering a range of investment themes. Those sectors include metals and minerals extraction, across both precious and base metals.
The trust also invests in companies related to other natural resources sectors, such as energy and agriculture. It includes exposure to several commodities, including gold, silver, copper, nickel, zinc, and aluminium. The fund charges 0.95% on an ongoing basis and has an annual management fee of 0.8%.
The fund invests along the entire mining value chain, looking at a number of commodities and will invest in base metals, industrial minerals, and precious metals producers. This diversification helps mitigate the risks of being overly reliant on a single commodity. The fund is actively managed and has a long-term outlook that allows it to invest through the commodity cycle, and follows a thematic approach, investing in structural growth drivers like the global energy transition, urbanisation and infrastructure and technology advancement.
The fund tends to favour established mining companies with strong balance sheets, efficient cost structures, and solid cash flows. Many of its holdings also pay attractive dividends, making it appealing to income-focused investors. The fund has a bias towards more mature, large-cap miners.
Hambro explained: “Near term, we expect performance to be driven by tariffs, protectionist measures and China stimulus and the resulting impact on demand. Longer term, we expect mined commodity demand growth to be driven by increased global infrastructure build out, particularly related to the low carbon transition and increased power demand.”
The team believes that the supply side of the commodity-equation is constrained. Hambro said:
Mining companies have focused on capital discipline in recent years, meaning they have opted to pay down debt, reduce costs and return capital to shareholders, rather than investing in production growth. This is limiting new supply coming online and there is unlikely to be a quick fix, given the time lags involved in investing in new mining projects.”
Over the short term, performance was disappointing, returning +1.1% over the last year (on a share price total return basis to 24th March), but beat the sector average of -3.5%. However, the average was dragged down by the abysmal performance of the two funds that were below it in the rankings who both lost more than 25% over the year. Over three-years the fund returned +156.5% against a sector average of +197.3%
Over the longer term, however, the fund began to shine, over ten-years returning +191.3% against a sector average of +69.2% placing it first in sector, which illustrates the long-term view of the commodities market.
2. Geiger Counter [LON:GCL]
A very unique fund in the sector is Geiger Counter [LON:GCL], a £65m specialist that aims to deliver attractive returns to shareholders principally in the form of capital growth, through investment in companies involved in the exploration, development and production of uranium to supply the nuclear power industry.
A uranium specialist, which is a risky play putting all of one’s eggs in one basket in terms of commodity, is planning on the increasing strategic role that uranium will play in the global decarbonisation efforts. That said, uranium is a volatile substance – and commodity investment – that can be more sensitive to regulatory changes and commodity price fluctuations. Management does accept the special nature of uranium and so as a hedge, has the mandate to invest up to 30% of the value of the company’s investment portfolio in other resources related companies from outside the energy sector.
Run by Keith Watson and Robert Crayfourd of London-based New City Investment Managers, Geiger Counter has been in business since 2006. Geiger Counter – being a uranium specialist – doesn’t have a set benchmark or try and correlate with an index. Instead, the fund is managed on an absolute return basis, with Watson and Crayfourd picking stocks that they believe will perform strongly over the longer term and has a global mandate.
Focus on North America and Australasia
Despite the fund being global in outlook, traditionally the managers have been biased towards North America and Australasia, and although the bulk of the fund is in listed equities, the mangers will also buy a chunk of a target company’s warrants, convertibles and debt, if that allows them to have exposure to that firm (which in a sector dominated by state-owned or state-administered entities is often the best way to gain exposure to the company).
The investment trust is running at a 4% discount to premium and has gearing of 21%. The Jersey-domiciled, closed-ended investment company is feeling pretty bullish about the market. Watson said: “…we believe the outlook for reactor fuel demand remains unchanged, underpinned by significant growth from ongoing reactor builds in China. In addition, other important nuclear markets also continue to move forwards on restarting capacity. Since January[…], encouraging developments in Japan have been announced. In a draft strategic energy plan, due for cabinet approval later in February, the Trade and Industry Ministry indicated that it was seeking to renew the country’s focus on nuclear power, rather than de-emphasise it.”
Performance-wise, the fund has seen its performance duck and dive. Over the last year, Geiger Counter was the worst fund in sector, with a -25.2% return, against a sector average of -3.5%. However, over three-years, the fund returned 299% against a sector average of 197%, placing it third.
Over ten-years Geiger Counter returned +105.33% against a sector average of +69.2%. Uranium is going to an interesting sector in the next few years, The new-found interest that President Trump has developed in making Greenland the 51st State of the US may be because of a profound anthropological interest in Inuit culture; or may be because of the vast uranium and rare-earth deposits that are being uncovered by the melting ice caps that dominate the territory.
3. Riverstone Energy [LON:RSE]
Riverstone Energy [LON:RSE] does what it says on the tin: it’s an investment trust managed by Riverstone Holdings that invests in energy. Riverstone has been listed since 2013, thirteen years after it was established. The Guernsey-registered fund has raised and deployed around $45bn and although starting off as an oil & gas sector play now spans both sides of the energy transition divide, with investments in the renewable energy sector and has a global investment mandate.
The fund has a simple name, and a simple mandate: ‘To generate long term capital growth by making investments in the global energy sector.’
Chairman, Richard Horlick said: “…over the last couple of years, investors and governments have developed a renewed appreciation for energy security […] This has combined with a growing awareness that the energy transition will take longer to achieve and be more costly than previously though.”
Horlick’s words ring-true with conflicts in the Middle East and Ukraine showing how fragile the current energy markets are, and with a new regime in charge in the US, the focus is shifting back to conventional energy.
Although renewables had a tough 2023 and 2024, the sector remains the only path to the future, and Riverstone’s ability to play both sides of the card puts it in a robust position in the short- and long-term.
The fund runs a very tight, concentrated portfolio, holding only eight stocks at the end of 2024 with five plays on the decarbonisation/transition side and three in conventional ‘legacy’ energy with a 25% cap on any single holding. Its three legacy holdings were Permian Resources [NYSE:PR.], Veren [TSX:VRN] and the private sector firm Onyx. Its renewable portfolio was all in private hands, and includes, GoodLeap, Infinitum, Solid Power, Group 14 and Hyzon Motors. The investment trust is currently very North America biased, a reflection of the manager’s view that Trump Administration in Washington is going to be a disruptor on a global scale – especially in energy markets.
Investment Manager, Riverstone Holdings is in itself an energy and power focussed private investment house investing as a private equity house and credit provider across exploration & production, midstream, oilfield services, power, renewables globally and has structured over 180 transactions globally for the energy sector. The investment trust is affiliated to Riverstone Holdings and can tap into its deal flow.
Share buyback programs
Riverstone Energy has implemented several share buyback programs in recent years to enhance shareholder value. In 2022 Riverstone bought-back £46m of its stock, which the following year it followed-up with a £30m buyback (inclusive of the £11m nor deployed in 2022).
Last year Riverstone committed to a £20m buyback, with its campaign reflecting the investment trust’s commitment to returning capital to shareholders and optimising its capital structure.
Performance over the last year was disappointing, returning -25.1%, a few basis points ahead of Geiger Counter and well behind the sector average. Over five-years however, it was top of the class with a +365.6% return, but then again over 10-years it had returned to bottom of the pile with an atrocious -32.4% return 101 percentage points behind the sector average.
It’s hard to say where Riverstone Energy is heading next, but investors have a very interesting fund in their portfolio, which could be phenomenal or disastrous by equal measure.
A hedge against inflation
The AIC’s Commodities & Natural Resources sector offers investors exposure to a wide range of asset classes and investment strategies, as demonstrated by the diversity of funds we’ve explored. From BlackRock World Mining’s focus on established mining giants to Geiger Counter’s concentrated bet on uranium, and Riverstone Energy’s strategic positioning across both traditional and renewable energy, each fund presents unique risks and opportunities.
While short-term performance may fluctuate, the sector remains a compelling option for those looking to hedge against inflation, capitalise on long-term structural trends, and diversify their portfolios. As the global economy navigates shifting energy policies, supply chain constraints, and technological advancements, investors in this space will need to balance resilience with innovation to stay ahead of the curve.
