The Fund posted a material gain in April rising by 10.74%. This boosted the Fund’s financial year-to-date gain to 92.97%. Performance was primarily driven by the Fund’s exposure to the rising structural demand for commodities driven by clean, green energy policy.
This included base metals (5.99%) primarily copper and nickel, battery metals (1.73%) and uranium (0.67%). The other large contributor in terms of sector was precious metals (3.24%) boosted by the gains from several listed gold producers. Bulk commodities (-0.91%) detracted at the margin due to weakness of several coal producer names.
Equities marched steadily higher in April, helped by signs of strong economic growth, and continued fiscal and monetary support. Record levels of fiscal stimulus across the G20 will continue to provide a strong tailwind for many commodities for years to come while we also welcomed the Biden Administration’s proposal of a new stimulus plan to expand “infrastructure” spending to a record pace, adding to the recently passed $1.9 trillion package.
Within the portfolio we retain exposure to this theme via key steel making ingredients including iron ore and coking coal which will be key beneficiaries of these stimulus programs. Clean, green energy driven demand is the largest structural theme in the portfolio representing approximately 60% of the portfolio. We believe that push toward a decarbonised future will drive a whole new paradigm of demand for those commodities required to support such a shift. This theme is currently expressed across base metals (copper and nickel), battery metals (lithium, nickel, cobalt), renewables (hydrogen) and uranium. We saw further tailwinds for this theme emerge in April as a wave of new emission reduction target commitments were announced by various governments.
The UK announced it would target reducing emissions by 78% by 2035, relative to 1990 levels, while President Biden announced the US would target a 50% reduction by 2030, relative to 2005 levels. China’s President, Xi Jinping, also said that China’s coal consumption would peak in 2025. The biggest question for markets in the second half of the year will be to what extent the rise in inflation is “transitory,” as the Fed has preemptively labelled it. The US Consumer Price Index (CPI) rose more than expected in March, increasing 0.6% MoM, while the core index increased by 0.3% MoM.
We note from our team’s recent site visits in Western Australia that labour availability and rising input costs are having a growing impact on the cost curves of many producers. We retain a material weighting to precious metals via gold producers and to a lesser extent silver. Historically, these have positively correlated to rising nominal yields and inflation expectations. The precious metal sector is also trading at historic lows from an equity valuation perspective, and we retain core exposures to several listed large and mid-cap low-cost producers in Australia and Canada.
The Fund’s net exposure finished the month at 136% and remains at the top end of its historical range given our view of the upside potential from current levels.
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