Inflation, dividends and a new commodities supercycle

TL;DR

Resources sector is expected to tighten due to recovering demand and constrained supply, while hidden gems in the portfolio offer significant returns.

Transcript

hello with me today i have rob crayford portfolio manager at the cqs natural resources growth and income trust the commodities sector as uh going through a boring period at the moment how do you see the next 12 to 18 months panning out for the resources sector optimistic yeah we're very optimistic i mean we're looking at an environment where we're ... Read More

Key Insights

• 🪛 Recovery in demand and constrained supply are driving an optimistic outlook for the resources sector.
• 🛩️ Smaller companies trading at discounts offer value benefits and potential returns in the portfolio.
• 🧑‍🏭 Commodities act as a hedge against inflation and can perform well in periods of inflationary pressure.
• ❓ The energy transition and government support are creating additional demand for materials, but supply is struggling to meet expectations.
• ✋ Permitting and project difficulties, higher prices, and geopolitical uncertainties are constraining new supply.
• 🧑‍🏭 The resources sector may see a prolonged period of demand growth, creating a super cycle, but supply constraints are the crucial supporting factor.
• 🤘 Hidden gems in the portfolio include companies focused on electric metals and other materials for the energy transition.

Questions & Answers

Q: Why are you optimistic about the resources sector in the next 12 to 18 months?

Demand is recovering, supply is constrained, and tragic events in Russia and Ukraine further tighten the market, leading to an optimistic outlook for the resources sector.

Q: Why don't big London-listed miners appear in your top 20 holdings?

The fund focuses on differentiation and believes investors can directly invest in big miners. The portfolio mainly includes smaller companies that trade at discounts and offer value benefits.

Q: Are there any hidden gems in the portfolio that could generate significant returns?

Yes, the portfolio includes heavily discounted names that have the potential to re-rate as projects progress and deliver value benefits. Electric metals like nickel, lithium, copper, and palladium are among the themes present in the portfolio.

Q: Do commodities provide a hedge against inflation?

Yes, commodities historically perform well during inflationary periods. Gold stands out in stagflation periods, but commodities, including mining and energy, provide a hedge against inflation in general.

Summary & Key Takeaways

• Demand for resources is recovering as countries emerge from lockdowns, while supply remains constrained due to lack of investment in new supply.

• Tragic events in Russia and Ukraine exacerbate the supply issue, as around 10% of global commodity supply comes from these countries.

• The portfolio does not include big London-listed miners as the fund focuses on smaller companies that trade at discounts and offer incremental value.