Sparkling half-year results from CQS Natural Resources Growth and Income (CYN) have again highlighted the poor timing of Saba Capital and other investors who sold out in the mining fund’s tender offer last July.
On the back of a surge in precious metals, the investment company made an underlying investment return of 69.3% in the six months to 31 December. With modest gearing, or borrowing, of 4.8% to 6.1%, CYN fund managers Keith Watson and Robert Crayfourd beat the 46.5% advance in the MSCI World Metals and Mining index
Chair Christopher Casey pointed out the impressive gains in response to global economic uncertainty had restored the fund’s assets to the level they were before the 45.7% exit orchestrated by hedge fund Saba.
Shareholders did even better in the half-year period, enjoying an 83.1% total return with the share price soaring from 199.5p to 355p. This compares very well to the 208.3p that sellers in the tender offer received.
Having adopted an enhanced 8% dividend policy, the company paid two quarterly dividends of 6.02p and 7p per share in November and February. A third is expected to be declared next month.
The board took advantage of the premium to which the company’s stock rose, issuing 712,5000 shares at average price of 330.1p.
In the past month, partly in response to the turmoil from the US war on Iran, the shares have slumped 17% to stand on an 11% discount to net asset value.
The de-rating also reflects the shock decision of the fund managers to serve three-month notice to Manulife CQS Investment Management. The interims showed the board drew down a further £3m from the company’s loan facility to enable Watson and Crayfourd to snap up bargain stocks in the market panic over high oil prices.
Our view
Matthew Read, senior analyst at QuotedData, said: “It is no secret that CQS Natural Resources Growth and Income has enjoyed a spectacular run of performance, driven largely by a surge in precious metals prices against a backdrop of higher inflation and elevated geopolitical uncertainty. As a result of strong stock selection and significant overweights to these segments, CYN has comfortably outpaced its reference indices as these results show.
“Alongside this, the board took steps last year to reinforce the trust’s appeal, including the introduction of an enhanced dividend policy and a clear commitment to discount control. At times, this has even pushed the shares to a premium, allowing the trust to reissue shares from treasury to meet investor demand.
“The key development since the period end, however, is the resignation of the portfolio managers. While the board has referred to ensuring a ‘smooth and sustainable transition’, there is still little clarity on what that will mean in practice. Will management pass to a new team within Manulife CQS or could there be a more significant change, such as a move to a different investment house, to retain the departing managers’ approach? CYN’s board has recently served protective notice on the existing manager, and we reiterate our view that shareholders should sit tight until there is greater clarity on the board’s plans.”
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