CQS Natural Resources Growth & Income plc (LON:CYN) Co-Fund Manager Robert Crayfourd caught up with DirectorsTalk to discuss the trust’s objectives, recent performance, commodity market drivers, precious metals, and opportunities across energy and nuclear markets.
Q1: What are the trust’s objectives and what does it uniquely bring to investors compared with other options in the market?
A1: Firstly, I’m Robert Crayfourd. I’ve been doing this for over 20 years and I’m co-manager on CQS Natural Resources, geologist by education.
The Trust itself, CQS Natural Resources, it’s an actively managed, diversified, commodities-focused and within that I mean mining and energy producers. It’s a Trust that, as I say, actively managed, diverse, but also it can have material shifts in its allocation.
So, what that brings to investors is that if they want resources exposure but feel they may be behind the curve slightly in how they allocate, that’s something that we bring because we literally focus on that 24/7 or certainly all our waking hours.
It’s a £150 million fund, so not huge, but not tiny either but that gives us plenty of flexibility to really focus on the best value opportunities that we see.
I think one of our big value adds is really in how we allocate the underlying resources exposure for investors. Additionally to that, it has an 8% of NAV dividend based on the prior quarter’s NAV, so that’s income that’s attractive for many investors.
Q2: Now, commodities have been garnering a lot more interest of late. What are the main drivers to that?
A2: It’s clearly been very topical. I think what we saw initially was gold and silver led rally, which ultimately turned into a broader metals rally and now everything across commodities appears to have got a bid. What are the key drivers for that?
I think one of the big overlying factors is concern around purchasing power. So, that’s termed the debasement trade and that’s basically just a devaluation of currencies and we see that with elevated government debt levels, increasing interest burdens etc., currencies weakening, US dollar was down 10% or so last year. We overlay that with very uncertain geopolitics and commodities are always driven by geopolitics, both in where it is supplied from and also where the demand comes from. We’ve had this real shift to more on shoring of supply chains. So, that’s also added support for it.
Ultimately, it’s a sector that’s been out of favour for a long time. Actually, what we believe is happening is we’re just starting to see a rotation back into real assets and part of that may also be this big boom we’ve had across the tech sector and concerns around a potential AI capex bubble, given the hundreds of billions. Just announcements this week of total 600 billion in land capex for this year, just from the big four so Amazon, Microsoft, etc.
So, I think people are looking to diversify and we’ve seen a bit of a rotation back into commodities but ultimately, it’s that flow back into real assets. They are on attractive valuations relative and the lack of investment over 10 years has left a constrained supply chain, just as we see increasing demand to ultimately driving this new world that we’re seeing. I think that’s why we’re seeing such a supportive environment.
Q3: Now, precious metals volatility has been making headlines recently. Do you think this phase has largely played out or is there more to come?
A3: Clearly, some of the moves we’ve seen have been very much unprecedented. We’ve had daily moves in percentage terms that have never been seen before, particularly in the likes of silver. That’s off a much higher dollar price per ounce so again, even more unprecedented on a dollar basis.
What’s been driving it? Well, clearly, they’ve been very strong. We had very strong returns last year and started off this year very strongly and then we had a bout of volatility. One of the big drivers to this has been Asian demand on the retail side so China and India being lead on that.
The drivers to that were China has a fairly captive capital market, so where they did use to invest in domestic property quite heavily, we’ve had a property crisis and that’s left precious as one of the most attractive other options. Central bank demand remains very strong in the background, not least because of supportive geopolitical tensions, which continues to see them shifting from treasuries. There have been some calls that are they in a bubble, given that we’ve seen these very strong moves but actually, undoubtedly, there are some speculative flows that have come into them. We believe that very much the fundamentals that underpinned precious metals in 2025 are still very much evident in 2026.
So, as mentioned there, we’ve got central banks still diversifying away from US treasuries, which was the largest US apparent risk-free asset, which you’re clearly not showing to be risk-free anymore with the dollar falling 10% and rate concerns. You’ve then got bar and coin, we’re talking about China and India, retail and Asia primarily driving that.
The big driver for us is we think financial markets are still not huge participators in precious metals, despite the headlines. Within that, we look to the physical ETF holdings, still well short of where we were post-COVID in 2020. Managed futures aren’t showing any extended positioning. If we look to the shares outstanding on some of the larger ETFs, actually, they’ve been declining in share count as the values have gone up so it doesn’t suggest to us that broader fund managers are heavily allocated, and we think that’s a key driver going through 2026 as well as M&A. So, we’re certainly positioned for that.
Jewellery has obviously been a bit softer but that has happened and is clearly evident within the numbers that we’re already seeing. Actually, in a way, you can actually paint a positive outlook on that because if we do have a dip back in precious metals, you’ve got this pent up demand for dip buying.
The way we look at it, we invest in the miners themselves so the equities near the miners are at some of the lowest multiples that we’ve seen in history at current spot prices, record earnings, M&A. Given the structure of the trust, it allows us to go into some of the earlier stage or like single asset type producers that are more likely to be M&A targets. We think that’s going to be a driver through 2026.
Q4: Where else are you seeing opportunities in the market?
A4: There’s many opportunities when you have this kind of volatility. I think one big theme that I think is becoming increasingly prevalent within how we’re viewing the world is ultimately the world is going to be short of energy. We’ve got these huge amounts of capital, as I mentioned earlier, going into building data centres, that’s just adding to what was already a tight market. If we just focus on those, this whole shift to AI and data centre build out, ultimately, the bottleneck to all of that is not going to be copper, it’s going to be energy.
Energy has been hugely out of favour. Valuations are largely depressed and this can form many forms, whether it’s across your E&Ps, your oil and gas producers, or other sources of energy. Nuclear is one that we’re heavily focused on within the trust with about 12% allocation towards the uranium miners, because actually nuclear is going to be one of the key solutions to this over the medium to longer term. It does leave this short term window over the next five years where these plans for a big build out ultimately meet a brick wall of having enough energy supply.
So, there’s many ways to play that, whether it’s through the fossil fuel producers, which have been hugely out of favour, depressed valuations, oil price in the mid-60s, which if the inflation link that back is somewhere near the lows and cost curve support versus where we were in the prior cycle.
So, we certainly think that’s increasingly looking more attractive going forward and there’s probably a likelihood of us kind of reallocating. We certainly have been starting to reallocate a bit more towards that and trying to benefit from names that play into that in the most attractive way.
Q5: So, just turning back to the trust, how has CQS Natural Resources performed over the short and long term?
A5: It’s coming off a very good couple of years. Keith and I have been co-managers here for about 10 years and I think it’s five or six times off the top of my head, just last year it was up over about 100%.
What I would say, I think we’re transitioning maybe to a bit of a different environment where it’s really important to keep a close eye on fundamentals. We’ve seen this market where all commodities are seeing a bid and getting a degree of lift and I think it’s one thing that we’re adding is our value add to our shareholders is that we’re very keenly focused on the fundamentals and they’re not equal.
So, where commodities can get lifted on a sentiment or a story around what the ultimate drive is going to be, it’s really important to look at what regional stockpiles are doing, where there’s sources of new supply, what is incremental sources of new demand. So, I think we’re seeing some commodities getting lifted that don’t feel as justified and there’s some that have lagged that actually really justify a bit more potential upside.
We talked a bit there on oil and gas having been out of favour and oversupplied but as we move into 2027, that market starts to look a lot tighter. If we have any disruptions, particularly around uncertainties in Middle East, especially with Iran, then that could really tighten that much sooner. Ultimately, fossil fuels will have to fill the gap on this energy shortage that we’re seeing over the next 4-5 years.
So, it’s shifting from a bit of a top down market to a bottom up. I think it’s going to be important to really focus on names that are going to deliver the best risk reward and that’s how we try and position through the cycle. That’s our longer term view, or longer term strategy, in how we position.
