City Natural Resources Growth & Income (CYN) has published a stunning annual return of 87% with its fund managers upbeat about prospects after reuniting with the £156m investment trust after a six-month absence.
Keith Watson and Robert Crayfourd’s defection from CQS Manulife in March and their arrival at Tufton in September prompted the trust to follow them and change its name from CQS Natural Resources.
Annual results yesterday showed that the trust’s spell in the hands of Manulife’s interim managers did not harm performance as the trust benefited from Watson and Crayfourd’s response to the war in the Middle East in February before they took gardening leave.
Taking some profits on gold and silver miners that had soared on the back of dollar “debasement” fears, and upping their holdings in energy companies as oil and gas prices surged, the trust grew net asset value (NAV) by 76.6% in the year to 30 June.
This underpinned an 87% total return to shareholders as the shares moved from a discount to a small premium above NAV enabling it to issue over 2.1m shares.
The shareholder return includes the 8%-yielder’s quarterly dividends, which it ramped up from 8p to 28.3p per share this year. With earnings per share of just over 1p, the payout is largely funded from investment gains.
Both NAV and share price returns were well ahead of the two benchmarks the trust uses: by comparison the MSCI World Metals and Mining index rallied 63.5% and the MSCI World Energy index advanced 34.1%.
The shares are volatile but after a setback at the end of the financial year, followed by another rally and a further pullback since early September, the trust has returned 56.9% over one year. Over five years, it leads the AIC Commodities & Natural Resources sector with a 186.1% total return.
At the end of September the managers were positioned 31.5% in gold miners, 29.5% in oil and gas companies, 8.8% in uranium, 7.6% in shipping, 6.6% in silver, with 5.5% in base metals, 2.6% in copper and 3.8% in coal.
In their commentary, Watson and Crayfourd said they were “delighted” with the annual performance and said they were positive about all sectors of the portfolio with the exception of copper and base metals. Here they focus on “high quality” companies given the reduction in industrial demand and impact on weaker miners that high energy costs will have.
They were confident that oil supply disruption, AI data centre demand for energy and critical minerals, and concerns of more loose “money-printing” monetary policies from Washington as the US grapples with over $40trn of debts would underpin further returns.
“Against this supportive backdrop for the underlying commodity prices, equity valuations remain attractive, with record earnings margins for the sector overall and strong free cash flow for the miners,” they said.
Chair Christopher Casey said the board shared the portfolio managers’ positive outlook. He looked forward to the trust benefiting from synergies from their role at Tufton, manager of the Tufton Assets (SHIP) shipping fund.
Our view
QuotedData senior analyst Richard Williams said: “An exceptional year for CYN, comfortably outperforming both its mining and energy comparators. The managers’ decision to take profits from precious metals following their extraordinary rally and reinvest in energy companies as geopolitical tensions intensified proved particularly well timed. Equally encouraging is the transformation in investor sentiment. Having completed a substantial tender offer last year, and moving activist Saba off the register, the trust has since moved from trading at a persistent discount to issuing shares at a premium, with further issuance following the year end. The return of Watson and Crayfourd under Tufton’s management also provides welcome continuity after a period of uncertainty.”
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