First Quarter 2020

The Global Resources Fund had a total return of negative 34.71 percent in the first quarter of 2020, slightly underperforming its benchmark, the S&P Global Natural Resources Index, which returned negative 32.88 percent. See complete fund performance here.

Plummeting energy prices due to drastically reduced global demand was the largest driving factor in the first quarter. Global lockdowns amid the effort to contain the spread of the coronavirus led to significantly lower demand for oil, natural gas and other commodities. Oil fell a massive 65.85 percent for the quarter and natural gas was down 25.05 percent.

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 palladium, gold and wheat, up 21.46 percent, 3.95 percent and down 0.18 percent, respectively. Palladium demand for pollution control in gasoline powered vehicles has been strong with tighter emission standards. We did trade the Aberdeen Standard Physical Platinum Shares ETF and added 2 basis points to the fund’s return. Gold benefited from the expanded balance sheet the Fed has taken on to support the economy with the onslaught of coronavirus. We did trade the SPDR Gold Trust and added 9 basis points to the fund’s return. Wheat was flat by the end of the quarter, but we did trade the Teucrium Wheat Fund and added 2 basis points to the fund’s return. With most sectors yielding negative returns, we averaged out a cash position of 9.15 percent over the quarter, and this improved the fund’s relative return by 196 basis points.
  • The best sector performance, relative to the benchmark, came from our early in the quarter overweight positions in oil & gas production, an underweight in steel and our internal trading model for sector specific ETFs across various commodities or beta sensitive equities to the respective commodity. Oil prices went into free fall as the quarter end approached with Saudi Arabia and Russia in a fight to force major curtailments in U.S. oil and gas production. We averaged a slightly overweight position in oil and gas production due to selling down positions at higher prices earlier in the quarter, 4.92 percent versus the benchmark’s 4.73 percent, and this contributed 92 basis points to the fund. We exited positions early. For example, we locked in an 11.38 percent gain on Occidental Petroleum while the benchmark suffered a 70.13 percent loss, yielding the fund 28 basis points of relative performance. Returns in the steel sector were down 37.52 percent. With the fund underweight steel at 4.98 percent versus the benchmark weight of 7.95 percent, it gained 90 basis points of relative performance largely by going zero-weight Asian and European steel. Our internal trading model for sector specific ETFs across various commodities or beta sensitive equities to the respective commodity captured 70 basis points of performance.
  • The fund’s best performing stock was Royal Road Minerals, which was up 35.63 percent with an average fund weight of 144 basis points and contributed 38 basis points to the fund. Royal Road advanced on positive drill results from their exploration properties in Colombia. VR Resources was our second-best contributor with 31 basis points on a 143.36 percent gain. The strong price gain reflects an investment newsletter recommendation. VR Resources did identify a large gravity anomaly, perhaps indicative of copper and gold mineralization subsurface, but it has not been drill tested yet. Lundin Gold was the third best contributing stock with a price gain of 15.10 percent, yielding 25 basis points to the fund. Lundin Gold issued a press release that they expect to pour the first gold at their Fruta del Norte mine in Ecuador in the fourth quarter of 2019. None of the three best performers were part of the S&P Global Natural Resources Index.

Weaknesses

  • The three worst performing commodities were crude oil, lumber and cotton, down 65.85 percent, 33.13 percent and 28.26 percent, respectively. In response to the fall in oil prices, we bought the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares ETF and added 38 basis points to the fund’s return. There were not suitable ETFs that provided direct plays to lumber and cotton.
  • The worst sector performance, relative to the benchmark, came from our overweighting in precious metals, underweighting in pulp & paper and underweighting in agriculture chemicals.
    • Precious metals represent slightly more than 19 percent of the fund and about 10 percent of the benchmark. Our stock selection was inferior to the benchmark, costing us a net 332 basis points. Not owning Newmont Gold and Barrick Gold collectively clipped the fund for 151 basis points.
    • The fund had an average weighting in pulp and paper stocks of 1.63 percent versus the benchmark at 7.30 percent. Trade tariffs and poor economic data were a headwind to the sector, leading to the underweighting decision, but stock selection was inferior to the benchmark, underperforming by 95 basis points. Oji Holdings Corp. was the strongest performer, off just 0.88 percent, costing the fund 35 basis points of relative performance.
    • The average portfolio weighting in agriculture commodities was 2.36 percent versus the benchmark at 10.58 percent. Our stock selection underperformed, but our underweighting left a net 71 basis points of relative performance unrealized. Nutrien, at 4.31 percent of the benchmark, was down 28.52 percent for the quarter; our average weight was 0.86 percent, but our holding in Mosaic did poorer than Nutrien yielding us 26 basis points of underperformance.
  • Newmont Mining, Ivanhoe Mines and Impala Platinum Holdings were the three worst detractors to our performance, losing 85 basis points, 63 basis points and 54 basis points, respectively. Newmont was one of the few gold stocks up for the quarter, gaining 4.50 percent, but copper prices slid 20.64 percent, pulling down Ivanhoe Mines. Platinum fell 25.19 percent, weighing heavily on Impala Platinum’s share price. Coronavirus lockdowns around the world have lowered expectations for future growth and commodity demand.

Outlook

IHS Markit said that current rates of supply and demand mean that oil inventories will increase by 1.8 billion barrels over the first half of 2020. The world will soon run out of places to store all the excess oil created from significantly reduced demand, as there is only an estimated 1.6 billion barrel storage capacity. IHS added that oil supply could exceed demand by a whopping 12.4 million barrels a day in the second quarter. According to asset manager Pickering Energy Partners, the U.S. oil and gas industry could see as many as 40 percent of its companies fall into bankruptcy or distress over the next two years due to the market crash. Companies will need to make deep cuts to budgets and 15 percent to 25 percent of workers in the field could lose their jobs. Rystad Energy said that globally, the oil industry will likely lose 1 million jobs in 2020.

In addition to lost demand due to coronavirus shutdowns, the energy industry was already suffering from the warmest winter in many years. According to Black Gold Investor chief investment officer Gary Ross, the loss in global oil demand due to mild temperatures is around 800,000 barrels a day. This past January was the hottest ever in Europe with surface temperatures 3.1 degrees Celsius warmer than average. The World Meteorological Organization says that global temperatures are already consistently breaking records, with 2016 the warmest ever followed by 2019. Warmer temperatures reduce demand for oil, gas and other fuels used to heat during the winter. According to the latest EPA inventory, greenhouse gas emissions in the U.S. rose by 2.9 percent in 2019.

Helen Mountford, vice president for climate and economics at the World Resources Institute, thinks that investments in clean technology and infrastructure could help pull economies out of the coronavirus meltdown. “In the past, infrastructure investment meant building roads. Now we can do things like investing in natural infrastructure to mitigate climate change.” Mountford says that now is an opportunity for countries to accelerate the transition to green energy sources by supporting new projects.

 

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.

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. Holdings are reported as of the most recent quarter-end. Holdings in the Global Resources Fund as a percentage of net assets as of 03/31/2020: Aberdeen Standard Physical Platinum Shares ETF 0.01%, SPDR Gold Trust 1.30%, Teucrium Wheat Fund 0.00%, Occidental Petroleum 0.00%, Royal Road Minerals Ltd 1.97%, VR Resources Ltd 0.48%, Lundin Gold Inc 3.71%, Direxion Daily S&P Oil & Gas Exp & Prod Bear 3X Shares ETF 0.00%, Barrick Gold Corp 0.00%, Oji Holdings Corp 0.00%, Nutrien Ltd 1.01%, Mosiac 0.00%, Newmont Corp 0.55%, Ivanhoe Mines Ltd 2.71%, Impala Platinum Holdings Ltd 1.01%.

Net Asset Value
as of 07/10/2020

Global Resources Fund PSPFX $4.42 0.07 Gold and Precious Metals Fund USERX $12.22 -0.12 World Precious Minerals Fund UNWPX $4.32 -0.03 China Region Fund USCOX $9.40 -0.10 Emerging Europe Fund EUROX $5.77 0.02 All American Equity Fund GBTFX $22.74 0.07 Global Luxury Goods Fund USLUX $15.89 0.17 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change