With Chinese demand for many raw materials cooling, these are tough times for commodity investors. But Will Smith, manager of the City Natural Resources High Yield Trust (LSE: CYN) remains confident. The £199m fund has an “elevated weighting” in gold and silver, says Beth Brearley in Fundweb, with around 34% of holdings in the precious metals, mainly via mining stocks, and another 31% in a combination of oil and gas and palm oil producers.
Smith acknowledges that miners haven’t always tracked the gold price in the past, but feels they’re in better shape now. “The nightmare scenario would be if the gold price went through the roof, but the market crashed, taking down gold mining shares. But because their balance sheets are so much stronger than in 2008 (when markets crashed), this provides a degree of protection as they are cash-rich and pay dividends. The amount of gearing (debt) they have is also far less than in 2008.”
The fund should benefit from consolidation in the gold mining sector, says Leonora Walters in Investors Chronicle. “Merger and acquisition activity has persisted… as more stragglers have been picked off by predators.”
Smith is also bullish on energy stocks. In particular he likes firms with expertise extracting oil in difficult conditions. “We look at outlying areas because the easy opportunities have been found.” He’s also made investments in uranium miners and renewable energy firms.
So far Smith’s strategy is paying off. Although down 7.8% over one year (against a loss of over 12% for the benchmark), over three years the fund is up 41.8%.
Contact: 020-7201 6900.
CNR High Yield Trust top ten holdings
| Name of holding | % of assets |
|---|---|
| Rea Holdings | 4.0% |
| New Britain Palm Oil Ltd | 3.5% |
| First Quantum Minerals | 1.9% |
| Perseus Mining Ltd | 1.7% |
| Eldorado Gold Corp | 1.7% |
| Sandfire Resources | 1.7% |
| Silver Wheaton Corp | 1.7% |
| Detour Gold Corporation | 1.6% |
| APA Group | 1.5% |
| Integra Mining | 1.5% |