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Jordan Tang, Head of Retail Distribution, interviews Daniel Sullivan, Co-Head of Global Natural Resources, about the Janus Henderson Global Natural Resources Fund (Fund).
Jordan: Today I have with me Daniel Sullivan, Co-Head of Global Natural Resources. This unique fund invests across listed energy, mining and agricultural assets. Pleasingly after a period of under-performance, the Fund has had a very strong start to 2019. Up in excess of 12%. This return has largely been driven by improving optimism in regards to the US/China trade war, and also the ongoing demand for bulk commodities. So Dan, I’ve just got a couple of questions for you today. Firstly, what has driven this return over the first six months of the year? And have there been any positive surprises driving this return as well?
Daniel: Pleasingly, it’s been across the board across all three of our main sectors in mining, energy and agriculture, particularly in mining though – the return in mining was close to 20%. A number of large events happened and one of the biggest was the change in the iron ore market where there was a disaster in Brazil, and iron ore has gone up nearly 65% in price on the back of that, and that’s driven the iron ore stocks up quite considerably. So we’ve done very well, owning Rio Tinto in the period – we resisted the urge to sell early, and it’s been great to hang on to it and make that extra return from it. But pleasingly the returns are more diversified, we’ve had a good return from Tyson Foods in the US, which is up over 50% and Lundin Petroleum, a great oil company working out of Norway, which is coming into a big pre-production period and their shares were also up 25%. So they were the three biggest areas for the Fund over the half.
Jordan: And in light of these quite large share price returns, clearly, if you’ve been in the Fund, you’ve been benefitting from this, but in terms of valuations, are they still looking reasonable for the sector? And, what are companies doing around dividends and paying cash back to shareholders?
Daniel: So certainly from an Australian investor context, you would have seen the massive dividend yields and returns in BHP and Rio, but what we’re finding is that’s quite prevalent across large cap companies around the world, so we’re seeing the same sorts of dividend payouts coming from the major oil companies, which we own, and other mining companies offshore. And so the portfolio is still trading quite cheaply – P/E is about 15x, and the dividend yield across the whole portfolio is 3.5%. So it’s a very strong yield and that doesn’t include the buybacks which are on top of that. We’re still expecting to see increased buybacks as a lot of these companies are still restructuring and selling non-core assets and returning that cash to shareholders. In our core book, as an example, around 20% of our Fund is in six stocks and those six stocks have a P/E of around 11x and a yield of around 6.5%. So there’s some names you know, like BHP and Rio, but also some that may be less familiar to people like UPM, ENI and also Shell and Woodside. So there’s good foundational value in the Fund still, and then we’re progressively moving out into more growth and developers as the market becomes more receptive to that type of name again.
Jordan: And clearly, you’ve mentioned a few Australian names and some global names, roughly, what percentage of the portfolio would be invested in offshore companies?
Daniel: It’s a fully globalised fund and so the Australian portion varies over time. But it’s generally between 10 and 20 per cent. And it is well diversified across the markets. So we tend to have a portion like that in Australia and around 20 to 30 per cent, in Canada, 20 to 30 per cent of the United States and 20 to 30 per cent in Europe. Then there are a few other places we can invest, and we do do that, but they’re the main stays with the Fund.
Jordan: Clearly with global equities, it doesn’t matter what sector you’re looking at, they have performed very well. Is there anything that you do in your fund differently to protect the portfolio during a period of downside if that were to come? And would you say the advantage of a product like this is it can invest in real assets, so there is an actual asset behind the company, as opposed to some of the more speculative names in the industry?
Daniel: Yes, that’s one of the big attractions of the space that we’re definitely trying to find companies that own real assets, and that are low cost producers and will survive the down cycles in their various commodities. That’s been very effective. We haven’t had any companies go broke on us in the Fund since inception. So that’s a good philosophy. Another plank of setting up the volatility target for the Fund was to bring agriculture in. And that’s been a terrific addition and helped us get a good outcome for investors. In terms of the positioning, commodities are still quite low compared to the 10 year average. If you look at the Bloomberg Commodity Index, they’ve been down at this low point in the cycle for three and a half years now. So that’s quite a long time for commodities. And you can see a lot of pent up demand and projects have been held back. So we are still quite positive on the outlook for most commodities going forward.
Jordan: Thanks again to everyone who watched our video. Hopefully it gave you more insights into the Janus Henderson Global Natural Resources Fund and how the Fund can work within your clients’ portfolios. Valuations, we believe, are attractive in the sector, the Fund is quite unique it its diversification of assets, we typically run about 70 stocks and we’ve got strong ratings and platform availability for the Fund. If you have any other questions at all, please reach out to your local sales director. Thank you very much.
Filmed 16 July 2019.
Glossary:
Price to earnings (P/E) ratio: A popular ratio used to value a company’s shares. It is calculated by dividing the current share price by its earnings per share. In general, a high P/E ratio indicates that investors expect strong earnings growth in the future, although a (temporary) collapse in earnings can also lead to a high P/E ratio.