Ninety-one Global Natural Resources set to continue strong performance?

Investment themes that were part of the furniture in 2022 are set to continue into 2023 – energy, inflation and resources. One fund that did well in 2022, and may likely follow-up with a good 2023 is the Ninety One Global Natural Resources (A Gr Acc USD) Fund.

The GBP607m fund is managed by London-listed investment management company, Ninety-one Plc LON:N91 currently listed on the FTSE250 index and a constituent of the index since March 2020. Ninety-one has global assets under management of GBP132.3bn, as at end-3Q22.

Ninety-one is an Anglo-South African investment management company, dual listed in London and the Johannesburg Stock Exchange. Formerly Investec Asset Management, the firm was founded as a spin-off from the investment bank, Investec [LON:INVR] in 1991, it demerged from its parent company in March 2020 and renamed itself Ninety-one in recognition of its founding date.

The Natural Resources fund is one of Ninety-one’s crown jewels. The fund, lead-managed by Tom Nelson, and supported by George Cheveley and Dawid Heyl was launched at the end of January 2008 and is a daily-dealing, sterling-denominated, Luxembourg-domiciled Sicav. Cheveley has been with the fund since launch.

Benchmarked against the MSCI AC World Select Natural Resources index, it falls under the Morningstar Equity Natural Resources Sector.

Investment objective

The fund aims to achieve long-term capital growth primarily through investment in equities issued by companies around the globe that are expected to benefit from a long term increase in the prices of commodities and natural resources. At least two-thirds of the companies invested in will be involved in mining, extracting, producing, processing or transporting a natural resource or commodity, or will be companies which provide services to such companies.

On a cumulative basis, according to Trustnet the fund has returned 80.8% over five years, against a benchmark return (FO Commodity & Energy) of 53%. Over one year the fund returned 33.1% against a benchmark return of 14.3% and in the last three months has returned 11% against a benchmark return of 5.3%.

On a discrete basis, according to Ninety-one PLC, the fund has outperformed its benchmark in 2022, 2021, 2020, 2019, but underperformed in 2018.

Ninety One Global Natural Resources Discrete Performance vs Benchmark 2018-YTD

Source: Ninety-one

The fund is primarily invested in the Integrated Oil & Gas Sector and the Diversified Metals & Mining sector and is overweight the index benchmark in Integrated O&G around 2 percentage points and underweight in Diversified Metals by around 3 percentage points. The fund also holds overweight positions in Fertilizers & Agricultural Chemicals (10.7%), Oil & Gas Refining (8%), but underweight in base and precious metals, Gold (-0.6%), Steel (-3.4%). However, the managers did make a call on Aluminium, holding 4% of the fund in the metal, against a benchmark holding of 1.3% with a cash holding of 1.2%.

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Bullish Europe

Interestingly, the fund does veer away from the index geographically, being a lot less bullish than the benchmark on the US, holding only 29.1% of the fund in the US against a benchmark of 40%. Conversely, the fund managers are more confident on the UK – at least they were at the end of November 2022 – holding 14% of the fund in UK securities against a benchmark holding of 11.7%. Grace and favour also rest on France, where the fund holds 11.8% against a benchmark holding of 2.4%. The love doesn’t extend as far as Brazil, where the fund is underweight the South American country by 3.1 percentage points.

As at the end of November 2022, the fund’s top five holdings were:

1. Totalenergies [LON:TTE] 6.9% (Oil & Gas/Energy)
2. Bhp Group Ltd [LON:BHP] 6.3% (Diversified Resources/Mining)
3. Exxon Mobil Corp NYSE:XOM 5.5% (Oil & Gas/Energy)
4. Deere & Co NYSE:DE 5.4% (Agriculture/Agricultural Machinery)
5. BP Plc [LON:BP] 4.9% (Oil & Gas/Energy)

The fund has a minimum investment of GBP3,000 directly, with an initial charge of 5.0% and an ongoing charge of 1.95%, however is available to invest through platforms for a smaller initial investment.

Energy crisis

Although the world is adapting to a lower carbon future, as of today there is no sign that the energy crisis is going to abate any time soon. The War in Ukraine is still putting untold pressure on global energy markets – a pinch being felt most severely in the Northern hemisphere and Western Europe.

Despite governments and regulators seeking quick, sustainable solutions to the disruptions in the oil and gas sector, longer-term, sustainable solutions will, well appear in the longer-term, which doesn’t solve the immediate problem of keeping people warm in winter, making sure the transportation network is still running and that people can cook their dinner. Although the main sting from the lack of gas is starting to abate, and the market is rebalancing, it will take time for gas and oil supply from other parts of the world to arrive consistently. As such the search for new sources will continue throughout 2023. Moreover, with China eventually free from its Covid-19 lockdown, when its economy reboots the issue of supply of LNG to Europe might again rear its head in winter 2023/24.

The solution, therefore, is for Europe to become more self-sufficient in terms of energy supplies, and this will see further investment in hydrocarbons exploration, transmission and distribution, as well as a surge in interest in renewable energy. All of these developments will need infrastructural support – hence the rise in demand for commodities like steel and copper and lithium.

Yes, recession will be an ongoing theme in 2023 and a lot relies on China emerging from its lockdown with a bang, and the US and Europe will slowdown, Nevertheless longer-term, the metals market is set to accelerate and the potential for another ‘super-cycle’ in metals to arise as the global economy shakes off its stupor at the end of 2023 into 2024 is predicable. Miners and refiners will be the place to be. Alongside this, as global recovery kicks in, the oil price will start to appreciate again.

Agriculture is another sector that has been affected by the War in Ukraine. Directly, Ukraine – a major producer of cereals – being taken out of the global market has caused supply issues especially in Africa. However, Russian hydrocarbon production also being removed has had a knock-on effect to the global fertilizer market. Lack of inorganic fertilizer supply is already starting to affect the price of food supplies, with many farmers warning of expectations of diminished agricultural yields in 2023/4.

If some or all of these potential trends come to pass, the Ninety-one Global Natural Resources will do well, so it’s definitely worth a look with one eye to the future.