Jordan Tang, Head of Retail Distribution, interviews Daniel Sullivan, Co-Head of Global Natural Resources, about the Janus Henderson Global Natural Resources Fund (Fund).

Interview transcript:

Jordan: Hello and thanks for joining us. It’s been an interesting backdrop since we last met back in July Dan, we’ve had the US/China trade wars, we’ve had Saudi oil attacks, Hong Kong riots, we’ve had the cancelled IPO of WeWork and some vulnerability coming across some of the previous tech market darlings. How would you describe the backdrop for the last quarter?

Daniel: Thanks Jordan. It’s certainly been more complicated than often in the past, but what we’re finding is the resilience of our companies is still standing us in good shape through it all. So some of those events, which should have been quite positive, actually faded very quickly and others, which should be quite negative, are being absorbed fairly well – so we are down a little bit from the highs in July, but we’re still having a good year, up about 11%.

Jordan: The Saudi oil attacks, put a little bit of pressure on the oil price in the short term, so the price was up (probably felt by most people at the bowser), but has it impacted company profits in the short term?

Daniel: It moved up very sharply – one of the fastest moves ever. And a lot of that was unwound within one week, so the market is obviously well-supplied and much more so than I think people were anticipating. And as a result, oil shares did move up sharply initially, but they are coming back. We do still expect good profitability from major oil companies, but certainly a higher price would help support the dividends that they’re producing and that’s the type of positioning we’re looking for.

Jordan: We saw the cancelled IPO of WeWork, we’ve also seen Lyft and Uber have pretty poor performance since listing. Do you think the market is focusing a lot more now on companies actually generating profit and that some of these business models which are churning through a lot of cash are going to be under pressure?

Daniel: We’re certainly seeing that start to come out. I think we’re at the very long end of a long cycle which has been very heavily focused on tech, and that’s pulled up the US market and global equities in general, and at the other end of the market, Europe has been generally in the doldrums and resources are a bit in that category as well. So we’re all performing at reasonable rates, but nothing like those high level sectors. We’ve seen this before and when those trends come to an end, what we find is the companies we’re in are very highly cash-generative and the shareholder base is quite resilient down here, having stuck with them and the yields are very high, so we’re in a good position. We do expect to see the reversion of the two sectors again and get better returns over time.

Jordan: Do you think the valuations of resource companies are starting to get people interested in the sector and are you seeing the generalists move across to looking at BHP and Rio as an example?

Daniel: Yes, so those yields that we’ve been talking about in big oil and big mining for a few years now have certainly attracted generalist investors, so we are seeing income funds come into them. And we’ve been talking about actually rotating somewhat away from that, probably for 12 months and the time has come upon us and I guess over the last six months we have been slowly withdrawing money from those types of stocks and what’s happening is the smaller end of our market, which is probably in the $1bn-$6bn market cap range, those companies are actually bringing new projects to fruition now and actually starting to make some quite constructive new discoveries. So we’ve been progressively moving that way and there’s a lot happening in that area.

Jordan: We’ve seen a recent bid in the milk space. Do you think there is going to be a bit more activity coming across in M&A, perhaps for agriculture for example?

Daniel: There’s certainly been a lot of talk, including from us, about agricultural M&A, the world as you know has got about 2bn more people coming. It’s a matter of mathematics and we can’t really stop it. There is limited land and supply is not easy, so a lot of farming areas in the world are still under pressure from weather and drought. To counteract that, technology is coming – so we try and invest in some of the technology innovation in seed and equipment. The aggregation across that space is still happening, we see China aggressively pursuing agricultural lands and companies. They’ve activated a plan to try and increase their milk gathering and processing capacity both on and offshore, and we think we will see that in a number of other agricultural and other sectors as well.

Jordan: How do you see the next six to 12 months playing out for your sector for those people who perhaps have been invested or for new clients looking at the sector?

Daniel: So after a fairly long period where smaller companies weren’t being rewarded and had a pretty tough time of it, that part of the market is coming back to life. Exploration is a statistical game, luck doesn’t always work and rates are quite low generally – five per cent success is probably a normal number, but very recently, Australia has probably generated about a dozen green field new exploration finds in gold, copper and oil, so that part of the market is coming alive, and there are other examples of that offshore as well like Hess in offshore Guyana, so that part of the activity in the global resource space is back to life. And there are really good opportunities out there, so that’s where we’re sort of moving the positioning towards.

Jordan: Okay, fantastic. Thank you Dan and thanks for listening to our video. The Janus Henderson Global Natural Resources Fund, we believe, is a unique product investing across Energy, Mining and Agriculture, and as the market looks to rotate out of some of the previous tech darlings, could be a good complement for your clients’ portfolios. Please visit our website for more details on the Fund or any questions, seek out your local sales representative. Thank you.

Filmed 14 October 2019.