Global Natural Resources Equity Fund

Risk Considerations

The Fund is actively managed and invests mainly in a widely diversified portfolio of shares of natural resources or commodities-related companies. The companies may be anywhere in the world, including emerging markets.
Investment in the Fund involves risks, including general investment risk, equity market risk, risks associated with depositary receipts, risk of investing in the natural resources sector, sector concentration risk and currency risk which may result in loss of a part or the entire amount of your investment.
The Fund may use derivatives for hedging and efficient portfolio management and is subject to derivatives risk. Exposure to derivatives may lead to a risk of significant loss by the Fund.
The value of the Fund can be volatile and could go down substantially.
Investors should not invest in the Fund solely based on this website.

Investment involves risk. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Overview

Manager's Outlook

A massive productivity wave in U.S. shale, which collapsed cost curves, began in 2011 and prompted a secular bear market in oil that has since extended to other commodities. History has shown that commodity cycles tend to last 15 to 20 years on average, and we continue to believe that there is more room for productivity to improve and for the bear market to persist. The secular dynamic of productivity-driven oil price deflation was exacerbated in early 2020 by dual demand and supply shocks hitting the market, creating unprecedented pressure on market balance and ultimately driving West Texas Intermediate (WTI) prices briefly negative in a clear signal that oil production needed to be swiftly and meaningfully curtailed.

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The global spread of the coronavirus effectively shut down many large economies around the world and drove a negative demand shock which far exceeded any weakness previously seen in oil. Historic data shows that, oil prices overshoot to the downside after demand shocks, as supply curtailments initially lag falling demand; conversely, supply lags in response to demand recovery, allowing oil prices to overshoot to the upside before eventually normalizing. We continue to expect the normalization of prices to reflect the underlying cost curves more closely over time but predicting the magnitude and duration of this process has now been complicated by multiple exogenous factors such as weather, geopolitics, and broader economic supply chain and inflation challenges. The ongoing conflict in Ukraine, in particular, has amplified near-term uncertainty and volatility in the commodity markets. While we continue to expect a normalization of prices as some of these exogenous factors reverse and productivity continues to improve, we recognize that we cannot know exactly how the Ukraine crisis will unfold going forward, exacerbating the high level of uncertainty around the timing and path of normalization.

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Nevertheless, we are likely to see some changes based on what has already occurred thus far that would make the normalization process for some commodities take longer than others. For instance, we think that global gas/LNG prices are likely to remain elevated for longer as there is no quick or easy way for Europe to structurally reposition away from its Russian gas dependence since gas cannot be as easily re-routed as oil given the long lead times of infrastructure. This then creates second-order effects on other commodities, such as fertilizers and other agricultural products, that rely on gas in the production process. What further complicates the landscape is the fact that some commodities are now pricing up to demand destruction levels in order to rebalance inventories. This is therefore increasing the odds of an economic recession which, in turn, has dampened the demand outlook for basic metals, resulting in a significant pull back across the industry.

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We have maintained our disciplined approach and remain committed to our data-driven, bottom-up stock selection process and our philosophy of buying and holding a diverse selection of fundamentally sound natural resources companies with solid balance sheets and trusted management. Our expansive global research platform continues to assist in identifying those companies that we think can provide long-term capital appreciation for our shareholders, and we believe that the market will reward our disciplined and consistent approach to investing over the long term.

Strategy

Fund Summary

Actively managed and invests mainly in a widely diversified portfolio of shares of natural resources or commodities-related companies. The companies may be anywhere in the world, including emerging markets.

Performance - Net of Fees

Past performance is not a reliable indicator of future performance.

30-Nov-2023 - Shinwoo Kim, Portfolio Manager,

Energy-related companies advanced in November, even as oil prices fell amidst easing supply concerns as the conflict in the Middle East seemed less likely to spread. Uncertainty surrounding OPEC+ also drove prices down as some members resisted Saudi Arabia’s push for deeper production cuts. Within the portfolio, an underweight allocation to specialty chemicals detracted. The industry rose on stronger demand, higher prices and cost-cutting, particularly amongst specialty coatings names. We narrowed our underweight during the period. An overweight position in US mixed exploration and production industry, which is heavily levered to natural gas, detracted as ample storage levels and expectations of mild weather lowered natural gas prices. An underweight to oil and gas transportation and storage pulled down returns. We narrowed our underweight in November. Conversely, stock selection added value in coal and consumable fuels. Uranium producers led returns in the space, with tight supply and elevated demand pushing uranium prices to a 15-year high. An underweight position in OUS oil and gas exploration and production boosted relative returns further amidst falling oil prices. Our focus in the industry remains in ‘quality beta’—low-cost operators with quality balance sheets.

30-Nov-2023 - Shinwoo Kim, Portfolio Manager,

After spending a decade underweight energy, the portfolio now has a modestly overweight allocation versus the peer benchmark. We added to high-quality and high-conviction names in energy and metals while trimming more defensive exposures like specialty chemicals, utilities and paper and forest products. This product is designed to provide support in periods of high and rising inflation, especially from commodities, and we remain committed to our process and focused on our investment edge as we transition towards a new commodity cycle.

31-Jul-2015 - Shawn T. Driscoll, Portfolio Manager,

From a country perspective, our allocation to Norway saw the largest percentage increase during the month of July. There were no notable reductions for the period.

30-Jun-2022 - Shinwoo Kim, Portfolio Manager, Global Natural Resources Equity Fund,

One of our largest sells was in Galp Energia, which encountered a series of production challenges. These proceeds helped to fund our top purchase for the quarter in Shell, one of the largest global integrated oil companies. The war in Ukraine has resulted in an acute natural gas risk given Europe's dependence on Russian supply, and Shell has the largest exposure to LNG among the major integrated oil companies. We feel Shell will be able to benefit from a significant structural change in global gas logistics that will likely take time to take shape, keeping gas prices high in the process. We also believe that recent management changes could unlock value and lead to a higher multiple.
We trimmed our position in France-based TotalEnergies to manage position size, though it remains our largest holding within the segment. Despite near-term weakness due to exposure to Russia, we like the company's high-quality management team, capital discipline, strong balance sheet, and credible plan to deliver solid production growth in the coming years. These qualities and an attractive dividend yield make TotalEnergies appealing in an environment where we expect the cost curve for oil to remain under pressure going forward.
We initiated a position in Baker Hughes, one of the world's largest oil field services companies. The quality of the business has significantly improved in recent years. There is no easy solution for the gas/LNG supply needs in Europe, which means prices could remain elevated as the region gradually pivots away from Russian gas. With this backdrop, we believe Baker Hughes' differentiated exposure to LNG and infrastructure capabilities could drive margin upside with increased activity and tightening capacity.
We initiated a position in Chile-based Sociedad Quimica, an integrated producer of lithium, iodine, and potassium-nitrate fertilizers. The company commands a high market share in each of the relatively consolidated businesses in which it operates. In addition to the potential margin uplift in its fertilizer business, we believe it could also benefit long term from the lithium upcycle driven by a growing supply-demand imbalance in electric vehicles amid increased adoption.
We added to Nutrien, a crop nutrient company that is the top global potash producer and agricultural retailer as well as a major nitrogen producer. Uncertainty around potash supply from Russia and Belarus has created expansion potential and pushed up incentive curves, which could benefit Nutrien's earnings. The company's retail segment distributes crop nutrients, crop protection products, seed, and merchandise, and could also help to provide some downside stability.
We also added to CF Industries, the largest low-cost nitrogen fertilizer producer in North America, as it could benefit in the current industry backdrop. We are attracted to CF Industries' risk/reward outlook and like its consistent, strong free cash flow generation, as well as the steps it has taken to strengthen its balance sheet.
We added to UPM-Kymmene, a former graphic paper company based in Finland that is in the process of pivoting its business toward growing areas of the forest/paper supply chain, including pulp and bioproducts from waste wood, such as biochemicals and biofuels. The company has a strong balance sheet and is at the tail end of a major investment phase, with strong organic growth expected upon the completion of a large pulp mill. UPM's differentiated wood-based biofuels and bioplastics technology also offer significant carbon dioxide reduction relative to fossil-based alternatives.
We eliminated our position in Stora Enso?an integrated paper, board, and wood products producer?and took advantage of share price weakness to add to Svenska Cellulosa, the largest private forest owner in Europe. We see a reasonable path to generating significant value from its vast forest holdings as industrial capacity expansion in the region has positively influenced wood prices, which in turn drives forest land values. Svenska's wood products division is structurally more profitable than those of its peers. Wood-based products are expected to replace less sustainable alternatives as the energy transition gains traction and carbon capture emerges as part of the solution for the global climate crisis.
Near-term price weakness created an opportunity to add to our top holdings in this segment. We increased our stake in BHP, one of the largest diversified miners. BHP is a well-run company, and we like management's efforts to simplify the business. The company exited its oil and remaining thermal coal assets this year, which has improved its ESG profile. While exposure to iron ore is a secular risk, the industry is consolidated, and BHP could benefit amid limited supply. The company is also supported by potential upside from its copper business and shift to potash, an important growth area
We eliminated the portfolio's position in copper producer Antofagasta, which is facing deteriorating fundamentals amid another cycle of elevated capital spending, in favor of other investment opportunities.
We opportunistically increased the portfolio's stake in Ball Corporation, a leading manufacturer of aluminum packaging for beverages, foods, and household products. Ball is the highest-quality name in beverage cans with a consistent capital allocation framework. The company operates in a consolidated industry that includes multiyear supply contracts to fillers of carbonated soft drinks, beer, energy drinks, and other beverages, as well as a business structure that allows for cost pass-through to consumers.

30-Jun-2022 - Shinwoo Kim, Portfolio Manager, Global Natural Resources Equity Fund,

Portugal-based Galp Energia lagged overall industry returns, with shares tumbling after the company released lackluster first-quarter results and hedged their guidance due to maintenance catchup from COVID. We trimmed our position during the quarter to fund other opportunities but still maintain a meaningful position. Overall, we believe Galp offers a solid risk/reward profile and long-term growth potential as it ramps up production in Brazil and Mozambique.
Shares of Alfa Laval declined due to weakness in its Marine division, where profit margins were negatively impacted by higher overhead, royalty, and material costs. Alfa Laval is a global market leader in heat transfer and separation equipment tied to efficient energy production for the marine, food and beverage, and pharmaceutical industries. Despite near-term weakness, we believe the company operates a high-quality business and also has a broad environmental portfolio that could be a "green winner," especially with its specialized heat exchangers that reduce carbon emissions.
Shares of mining giant BHP fell over the quarter but fared better than industry peers. The stock has benefited from higher volumes and on-track cost and production guidance. BHP has also been delivering on its social value plans of decarbonization, environment, and emission reduction, and recently spun off its oil business. We added to our position during the quarter.
Reliance Steel & Aluminum, which operates a network of metal service centers in North America, reported strong first-quarter results and significantly outperformed the industry. The earnings reflected robust demand across the majority of the end markets served as well as improved shipment levels and higher metal pricing. The company enjoys high integration with its customer base, given specialized orders that require a higher level of value-added processing or customization than a larger steel mill would provide. We appreciate management's focus on returns and profitability, as well as the company's under-leveraged balance sheet, track record of execution, and ability to compound earnings over time.
Shares of EOG Resources outperformed over the period, boosted by higher oil prices. The company reported strong operational performance, announced a higher-than-expected special dividend, and maintained its 2022 guidance despite inflationary pressures. We like EOG's best-in-class management team, technical sophistication, and operational excellence. We also view the company as a pack leader in onshore discovery and execution.
Devon Energy also held up well and lifted relative returns amid strong first quarter results that included better-than-expected fundamentals. The company might enter a period of more muted returns given the potential for oil to retreat from current high prices. We continue to like the company's scale, favorably restructured asset base, and strong balance sheet position, but trimmed shares of the stock on recent strength.

Disclosure on Vendor Indices can be found here.

Risks

Typical Investor