Third Quarter 2020

The Global Resources Fund had a total return of 38.21 percent in the third quarter of 2020, significantly outperforming its benchmark, the S&P Global Natural Resources Index, which returned 20.47 percent. See complete fund performance here.

In general, commodity prices were in recovery mode following the extreme sell off in the first quarter with coronavirus-related lockdowns and the Saudi flooding of the market with oil. Notable sectors which lagged in the third quarter were crude oil, coal and nuclear fuel. The gainers were largely precious metals, copper, zinc, iron and nickel related. Natural gas finished the quarter with nearly an 11 percent gain, but was up as much as 50 percent intra-quarter.  

Past performance does not guarantee future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost.

Strengths

  • The three best performing commodities were lumber, silver and palladium, up 45.83 percent, 27.62 percent and 18.89 percent, respectively. Overall, most commodity prices continued to gain ground from March lows. Lumber benefited from stay-at-home construction and housing demand firmed up with low mortgage rates. Silver clocked its second quarterly gain of nearly 30 percent as investors added other precious metals to their holdings beyond just gold. Palladium also benefited from the increased investment interest.
  • The best sector performance, relative to the benchmark, came from our underweight positions in integrated oil, overweight in electrical products and overweight in precious metals.
    • We were underweight integrated oil companies significantly, 6.44 percent versus the benchmark at 21.85 percent. Stock picking was also superior with our picks averaging a return of negative 3.59 percent versus the benchmark of a 17.12 percent loss. Total allocation and stock picking yielded the fund 425 basis points of outperformance.
    • For electrical products, a non-benchmark sector, we had an average weighting of 6.32 percent – predominantly alternative energy companies. We also had superior stock selection with our gains yielding a weighted return of 63.12 percent, yielding the fund 301 basis points of performance.
    • Our overweight precious metals position, representing 25.55 percent of the fund, averaged a weighted 14.59 percent gain relative to the benchmark weight of 13.03 percent which only appreciated 6.78 percent. Our overweight and better stock picking yielded the fund 268 basis points of outperformance.
  • The fund’s biggest contributor to performance was Vestas Wind Systems A/S, which was up 59.43 percent with an average fund weight of 272 basis points and contributed 127 basis points to the fund. Vestas is one of the biggest wind turbine makers in the world. Canadian Solar was our second-best contributor with 116 basis points on an 82.15 percent gain. Solar stocks are increasingly becoming a bigger slice of the electric grid and investors want to be part of the new green energy mix. Ivanhoe Mines was the third best contributing stock with a price gain of 28.18 percent, yielding 88 basis points to the fund. Copper prices were up 10.57 percent in the third quarter and copper is increasingly viewed as part of the metal suite needed to make the transition to cleaner electric engines. None of our three best performers are members of the S&P Global Natural Resources Index.

Weaknesses

  • The three worst performing commodities were uranium, coal and crude oil, down 8.43 percent, 2.09 percent and up 1.62 percent, respectively. Uranium performed better earlier in the year on the expectation that utilities needed to start new contract negotiations for supplies. However, over the summer, HB 6 in Ohio triggered an investigation into a $60 million bribery scandal resulting in criminal charges against House Speaker Larry Householder by the FBI trying to suppress green energy within the state. Coal is increasingly losing market share to renewables and crude oil prices languished with demand depressed.
  • The worst sector performance, relative to the benchmark, came from our underweighting in agriculture chemicals, containers/packaging and pulp/paper.
    • We only had 1.98 percent of the fund exposed to agriculture chemicals versus the benchmark weight of 10.71 percent. Our stock selection was better than the benchmark with a weighted return of 25.83 percent versus the benchmark’s sector return of 17.31 percent. Our underweighting of a good performing sector left 105 basis points of performance unharvested. Chemicals used in the agriculture industry face more environmental scrutiny than in the past.
    • We were underweight containers/packaging, with 2.55 percent of assets exposed to the sector versus the benchmark at 8.53 percent. However, our performance was in line with the benchmark where we returned an average gain of 14.19 percent versus 13.91 percent. Our underweight left 66 basis points unclaimed.
    • For pulp/paper, we averaged a weighting of 1.82 percent while the benchmark weight runs at 8.79 percent. Our stock picks gained 29.55 percent and the benchmark gained 13.29 percent. Despite our stronger stock picks, our underweighting took 40 basis points with the difference.
  • Nutrien Ltd., Stora Eneso Oyj and Weyerhaeuser Co. were the three worst detractors to our performance, losing 61 basis points, 41 basis points and 37 basis points, respectively. Nutrien is the second biggest holding in our benchmark with a weighting of 4.01 percent and we only had 0.72 percent of the fund held in this company, which gained 23.47 percent over the quarter. We were zero-weighted in Stora Eneso Oyj, a benchmark holding in the pulp/paper sector with a weighting of 1.64 percent, which gained 31.37 percent for the quarter. We were also zero-weighted in Weyerhaeuser, which is a lumber stock but operates under a real estate investment trust tax structure. Weyerhaeuser has a 1.74 percent weighting in the benchmark and rose 26.98 percent for the quarter.

Outlook

BP became the first oil supermajor to call for the end of oil’s growth era. According to a report released by the company, BP said oil consumption may never return to levels seen before the coronavirus pandemic. The Organization of Petroleum Exporting Countries (OPEC) reduced its forecast for global oil demand for each quarter to the end of 2021 by an average of 768,000 barrels a day, as consumption is on track to fall by 9.46 million barrels a day this year. Thermal coal demand has fallen almost 20 percent in India, the world’s second biggest importer after China whose imports are estimated to fall about 2.2 percent this year based on work by Bloomberg Intelligence.

A surge in new wind and solar capacity is driving wholesale electricity prices so low in parts of Australia, foreshadowing difficult times for the world’s top coal exporter to make a profit. The country’s coal power plants make up more than half of Australia’s generation mix but are facing increased pressure due to the rise in renewables. The nuclear industry is adapting to survive. Companies globally are developing a new generation of reactors that are 90 percent smaller than massive facilities that have dominated the industry. These new plants are designed to be faster and easier to build and could make nuclear affordable and cleaner in developing nations that don’t need huge reactors, writes Bloomberg’s Will Wade.

The EU launched a hydrogen strategy that targets 40 gigawatts of renewable hydrogen capacity in the bloc by 2030. BloombergNEF notes that this plan will require massive infrastructure spending to get hydrogen up and running. The cost is estimated at 27 to 64 billion euros on pipeline spending by 2040. The U.S. Department of Energy awarded grants to several companies under a new $64 million hydrogen research and development program, while Australia shortlisted seven companies for A$200 million in hydrogen grants.

China’s President Xi Jinping said at the country plans to be carbon neutral by 2060. The world’s most populous nation and top energy user said it plans to spend more on green technologies in the next five years. Airbus unveiled a trio of zero emission passenger aircraft powered by hydrogen that could take to the skies by 2035. The jet maker’s new designs feature a turbofan aircraft with a range of 2,000 nautical miles, a modified gas-turbine engine and capacity for 200 passengers. Exchange-traded funds (ETFs) tracking clean energy share indexes have jumped fourfold in the last 12 months. BloombergNEF analysis shows that nine ETFs focusing on shares in sectors such as renewable power, energy efficiency and fuel cells saw their aggregate market capitalization increase from $1.7 billion to $6.6 billion in the one-year period ended September 18.

 

The S&P Global Natural Resources Index includes 90 of the largest publicly-traded companies in natural resources and commodities businesses that meet specific investability requirements, offering investors diversified, liquid and investable equity exposure across 3 primary commodity-related sectors: Agribusiness, Energy, and Metals & Mining. It is not possible to invest in an index.

A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).

Fund portfolios are actively managed, and holdings may change daily and should not be considered a recommendation to buy or sell any security. Holdings are reported as of the most recent quarter-end. Holdings in the Global Resources Fund as a percentage of net assets as of 09/30/2020: Vestas Wind Systems A/S (3.23%), Canadian Solar Inc (2.45%), Ivanhoe Mines Ltd (3.99%), Nutrien Ltd (0.78%), Stora Eneso Oyj (0.00%), Weyerhaeuser Co (0.00%), BP (0.00%), Boeing (0.00%).

Net Asset Value
as of 12/03/2020

Global Resources Fund PSPFX $5.57 0.04 Gold and Precious Metals Fund USERX $13.07 -0.11 World Precious Minerals Fund UNWPX $4.96 -0.02 China Region Fund USCOX $9.46 -0.01 Emerging Europe Fund EUROX $6.13 0.01 All American Equity Fund GBTFX $24.52 -0.11 Global Luxury Goods Fund USLUX $19.74 0.08 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change