It’s a new dawn for asset manager CQS Investment Management, founded 25 years ago by Michael Hintze. It was recently acquired by the Canadian financial giant Manulife.
For now, the CQS brand remains, although Lord Hintze has left the program, taking with him the flagship hedge fund he has long managed. So, it’s business as usual for CQS, an investment firm renowned for its credit management (CQS stands for convertible and quantitative strategies).
However, CQS also has another common thread. It has a natural resources investment team that manages three investment funds.
Between them, the team, consisting of Ian Francis, Robert Crayfourd and Keith Watson, manages the Geiger Counter investment trusts (investing mainly in uranium stocks), the small Golden Prospect Precious Metals fund (capitalization of £29m) and CQS Natural Resources Growth and Income.
All three funds remain somewhat in the shadows, a result of the dominance of rival resource funds such as the £1.1bn BlackRock World Mining, which tend to attract the attention of powerful wealth managers looking to invest clients’ money. It partly explains why shares in all three trusts have double-digit discounts to the value of their underlying assets.
For investors, this potentially provides the opportunity to make additional profits if these discounts narrow, although there is no guarantee this will happen. Over the past five years, shares in all three trusts have traded at a discount more often than not.
The Natural Resources Growth and Revenue fund is the most established of the three. Launched in June 2003, the £127 million trust, listed in the UK, invests in a wide range of international companies with commercial interests in the mining or extraction of a wide range of natural resources.
His investment track record is stellar. Over the past five years, it has delivered shareholder returns of 187 percent. Over the past year, it returned 18 percent. In comparison, BlackRock World Mining’s respective returns are 142 percent and 2.8 percent.
What sets the fund apart from its rivals is its focus on small and medium-sized companies, so it is not interested in traditional energy-related stocks such as BP and Shell, which it believes investors can easily buy and hold as stand-alone investments in their wallets.
The result is a fund littered with stocks unknown to most UK investors (listed in the US, Canada and Australia). Shale oil companies are a strong investment theme. “We like American shale oil producers,” Crayfourd says. ‘Their activities are terrestrial and therefore have surface area in terms of expansion. Yes, the world is going electric, but it still needs oil.” Among the fund’s top ten holdings is US shale oil producer Diamondback Energy.
Aside from oil and gas stocks, which account for a quarter of the trust’s assets, the other big sector is precious metals.
“We like gold as an asset,” says Keith Watson. ‘The price of gold is supported by strong purchases by central banks in countries like China. If Western investors feel an appetite for gold, the price should continue to rise.’ Listed Australian gold miner West African Resources is a top ten holding company.
The trust pays a quarterly dividend. For the first three quarters of this year it has been set at 1.26 pa. This equates to an annual income of around 2.9 percent.
Current annual expenses are high, 1.8 percent (source: Association of Investment Companies).
