M A R C H 2 0 1 9 Global Natural Resources Strategy GOEHRING & Natural Resource ROZENCWAJG Investors
3 Tie Case for Commodities Table of 7 Why G&R Contents 10 History 12 Philosophy 13 Investment Process 19 Portfolio Guidelines 20 Role in Portfolio 26 Performance 27 Positioning 29 Current Market Views 37 Our Research in Action 44 Team Biographies 45 Related Performance 47 Contact Us 2 FOR INSTITUTIONAL INVESTORS ONLY
THE CASE FOR Commodities 3 FOR INSTITUTIONAL INVESTORS ONLY
Why NATURAL RESOURCES Improving Fundamentals Our models suggest that supply/demand fundamentals have improved while most investors remain historically underweight to the industry. Improving data will likely lead to a renewed interest in the sector with resulting inflows. Valuation Natural Resource markets have been in a five-year bear market and today we believe they ofger very attractive valuations. Historically, the strongest natural resource investment returns occur afuer long periods of market under-performance ever recorded. 1 Low Correlation Natural Resources tend to exhibit a low correlation with the broad market. The S&P Natural Resource Stock Index has a 0.59 correlation of monthly total returns with the S&P 500 Index since 1996. 1 4 FOR INSTITUTIONAL INVESTORS ONLY 1 Source: Bloomberg, Goehring & Rozencwajg models
W H Y N AT U R A L R E S O U R C E S ? Commodities Have Never Been Cheaper Compared to the S&P 500, the price of commodities has never been cheaper. GOLDMAN SACHS COMMODITY INDEX S&P 500 Ratio CAGR Period GSCI S&P Relative D to A B 49% -13% 62% F B to B C 5% 13% -8% to C D 40% 2% 37% to D E -4% 19% -23% to E F 19% 0% 19% C to F G -16% 7% -23% E Average G A 36% -4% 40% Inflationary Period Average G -5% 13% -18% Defmationar y Period 5 FOR INSTITUTIONAL INVESTORS ONLY As of 6/30/18; Source: Bloomberg
W H Y N AT U R A L R E S O U R C E S ? Investor Interest Is Low The weight of Energy and Materials in the S&P 500 is at a 13-year low and is approaching the lowest reading ever recorded. ENERGY & MATERIAL WEIGHTING of the S&P 500 21.0% 19.0% 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 6 FOR INSTITUTIONAL INVESTORS ONLY As of 12/31/18; Source: Bloomberg
WHY Goehring & Rozencwajg 7 FOR INSTITUTIONAL INVESTORS ONLY
39 We are value investors. We think YEARS the best time to fjnd value is when investor sentiment is bearish, price Combined experience managing natural resource investments is depressed, equities are cheap, with extensive industry contacts and our fundamental analysis tells $8 BN us the S/D dynamics have changed. Raised for natural resource funds. $5 BN for a natural resource hedge fund, $3 BN for a mutual fund RESEARCH-DRIVEN PROCESS Our investment process is entirely driven by original research from which we derive our long-term commodity price assumptions, which 91% ofuen difger significantly from consensus opinion. Versus Lipper peer group net of fees CONTRARIAN VALUE PHILOSOPHY since inception (1/1/92) We are value investors. We strive to realize the highest level of capital appreciations by investing in global natural resource T op Quintile markets without incurring excessive risk. FOCUS ON PERFORMANCE & FEES Amongst Lipper peer group We seek to deliver top quartile performance in our peer group on 1-3-5-10-20 year basis over a 3 – 5 year time horizon while simultaneously striving to keep our expenses and fees in the lowest quartile in our peer group. 8 FOR INSTITUTIONAL INVESTORS ONLY
Portfolio Managers Leigh R. Goehring 27 YEARS OF NATURAL RESOURCE INVESTMENT MANAGEMENT 2005 - 2015 Launched/managed Chilton Global Natural Resources Fund 1991 - 2005 Managed Jennison/Prudential Natural Resources Funds 1986 - 1991 Managed Prudential-Bache Option Growth Fund 1982 - 1985 Trust Department of the Bank of New York 1982 BA, Hamilton University, Economics and Mathematics Adam A. Rozencwajg, CFA 12 YEARS OF NATURAL RESOURCE INVESTMENT MANAGEMENT 2007 - 2015 Worked exclusively for Chilton Global Natural Resources Fund 2006 - 2007 Lehman Brothers, Investment Banking Division 2006 BA, Columbia University, Economics and Philosophy 9 FOR INSTITUTIONAL INVESTORS ONLY
History December 1991 May 2005 November 2007 December 2016 Leigh Goehring starts Leigh joins Chilton Adam Rozencwajg Launch of Goehring managing Prudential Investment Company; joins Chilton; Chilton & Rozencwajg Jennison Natural managing Chilton Global Global Natural Natural Resources Resources Fund Natural Resources Fund Resources Fund Mutual Fund March 2005 December 2007 December 2015 January 2016 AUM of Prudential AUM of Chilton Goehring & Launch of the Goehring Jennison Natural Global Natural Rozencwajg & Rozencwajg Resources Fund Resources Fund Associates LLC Global Natural reaches $3 billion reaches $5 billion is established Resources Strategy FOR INSTITUTIONAL INVESTORS ONLY 10
INVESTMENT PHILOSOPHY & PROCESS FOR INSTITUTIONAL INVESTORS ONLY 11
Philosophy A fundamental research firm focused exclusively on contrarian natural resource investments, with a team with over 30 years of dedicated resource experience. There are four pillars to our investment philosophy, values and approach: RESEARCH CONTRARIAN BEST FOCUS ON VALUE IDEAS PERFORMANCE FOCUSED APPROACH PORTFOLIO AND FEES PHILOSOPHY We believe the best way We seek to deliver top If there is one thing We believe that portfolios that defines our Firm, to find value in global quartile performance in of 50 - 70 positions ofger it is our top-quality commodity and natural our peer group over a investors access to our resource markets is when 3 – 5 year time horizon difgerentiated research best ideas while mitigating prices are depressed, while simultaneously focused on both idiosyncratic risks and investors are discouraged, striving to keep our the commodity level providing diversification. as well as the specific and financial expenses and fees in We are long term investors; security level. measurements the lowest quartile in target range for portfolio are cheap. our peer group. turnover is 20 - 25% per year. FOR INSTITUTIONAL INVESTORS ONLY 12
Top-down COMMODITY ANALYSIS Investment Process Bottom-up SECURITY ANALYSIS Our research identifies situations where we believe the industry fundamentals have shifued, but the market has not yet noticed. Our investment approach tries to be contrarian in nature and we ofuen find PORTFOLIO ourselves early to an investment thesis, CONSTRUCTION with periods of under-performance that we anticipate will be reversed as the commodity’s fundamentals become more widely accepted. RISK MANAGEMENT FOR INSTITUTIONAL INVESTORS ONLY 13
Top-down COMMODITY ANALYSIS We begin with a top-down analysis of various commodity sectors. We utilize publicly available Bottom-up data when available, combined with proprietary databases to create an in-depth supply and SECURITY demand model. ANALYSIS We model the cost to bring on new supply, the unit economics of existing production, and trends in the underlying current production base in an attempt to understand supply dynamics. PORTFOLIO On the demand side, we attempt to model the relationship between regional considerations, CONSTRUCTION macro factors, and consumer trends in an attempt to project demand under case-based scenarios. RISK MANAGEMENT FOR INSTITUTIONAL INVESTORS ONLY 14
Top-down COMMODITY ANALYSIS We compute net asset values ("NAV") for the commodity producers we look at. Using our Bottom-up long-term commodity price forecast, we model current and future expected production profiles, SECURITY operating costs and capital spending to ANALYSIS approximate a NAV. Our process is largely driven by extensive fundamental modeling of companies in our universe, extensive management meetings and whenever possible, site visits to the projects PORTFOLIO in question. CONSTRUCTION We attempt to identify new profitable growth projects and compare them against other investments available in the industry. RISK MANAGEMENT FOR INSTITUTIONAL INVESTORS ONLY 15
Top-down COMMODITY ANALYSIS Our universe is primarily global equities. We invest across market capitalization & geography. Bottom-up A fully expressed theme in our portfolio typically represents approximately 20-30% with the exception SECURITY of energy which, given its many subsectors, could be weighted as much as 60%. ANALYSIS At the security level, our portfolio is typically comprised of 50 – 70 of our “best ideas” across market cap and geography. We size our positions with an eye toward managing risk PORTFOLIO and reward; max position size is typically around 5%. CONSTRUCTION We are long term investors; a target range for turnover is 20 – 25% per year. RISK MANAGEMENT FOR INSTITUTIONAL INVESTORS ONLY 16
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