CQS Natural Resources Growth & Income (CYN) fund managers Keith Watson and Robert Crayfourd have responded to the Iran war by hiking energy holdings to 34% from 24% and cutting gold and silver miners to 37% from 49% at 31 January. No reference was made to their imminent departure announced this week in the update.
The £132m mining fund has been buffeted by the conflict raging in the Middle East and news of the managers handing in their notice on Monday. Shares that have soared 113% in the past year, have slid over 9% in the past week to stand 15% below net asset value (NAV) compared to the 12-month average discount of 3.7%.
They rose 2.1% to 367.7p after the update, bucking falls in the broader market with the FTSE 100 off 0.8% at 10,332.
CYN said the re-weighting had seen gold and silver equity exposure fall from 56% at 31 December with oil and gas producers, refiners, rigs, shipping and coal lifted from 17% at the end of last year.
It said this had proved to be the right decision as by last Friday 6 March, NAV per share had jumped 22.6% from 349.9p to 420.9p versus 17.6% for the MSCI World Metals and Mining and 24.3% for the MSCI World Energy indices in sterling.
The company said: “While market conditions remain highly volatile, the portfolio managers continue to keep a close eye on developments in the Middle East and will continue to adjust the portfolio to maximise the performance of the company and shareholder value. Despite a co-ordinated global release of strategic oil reserves in an effort to calm markets, at the time of writing, Brent crude has risen 26% in March and gained 50% higher since the beginning of the year. The medium-term view of the portfolio managers underpinning this re-weighting is that the fundamental backdrop for energy related equities has now improved. Having kept a low weighting in energy for the last two years, as OPEC focused on regaining share, it is likely that the oil market is moving from a position of oversupply to one of balance, leaving the market exposed to supply shocks.
“Despite efforts by the US administration to talk down the duration of the war, at this point in time there remains risk of protracted disruption in the Strait of Hormuz, through which 20m barrels of oil pass each day, equivalent to 20% of global supply, alongside 25% of global LNG supplies. As an example, Yemen Houthi rebels inflicted disrupted shipping through the Red Sea for two years: a better equipped and organised Islamic Revolutionary Guard Corps (IRGC) represents a significant threat to continued disruption of global oil and gas supply, despite the presence of a western naval fleet amassing in the area. This will likely manifest itself through a restriction in the availability of shipping and cargo insurance thereby impacting trade flows through the Strait.”
