Alma Recurrent Global Natural Resources Fund
- Alma Recurrent Global Natural Resources Fund invests primarily in publicly traded equity and debt securities of global natural resource-related companies, operating in a capacity related to the supply, production, distribution, refining, transportation and consumption of natural resources.
- The fund’s management is delegated to Recurrent Investment Advisors LLC.
Cumulative Performance (%)
Fund Inception 29 June 2018
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance quoted. The investment return and the principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Strategy & Manager
• Investment objective: the fund seeks total return by investing in global natural resource-related companies.
• Typical industries in which the fund invests: energy, basic materials, infrastructure, transportation and logistics
• The fund may invest in companies of any market size capitalization, including IPOs
• The investment process incorporates macroeconomic and commodity supply/demand factors with fundamental company analysis
Recurrent Investment Advisors LLC is an SEC regulated entity located in Texas and created in 2017. Cofounders Mark Laskin and Brad Olsen both benefit from a significant track record in similar strategies.
Mark Laskin, Co-founder and Managing Director
Before founding Recurrent Investment Advisors, Mark was the lead energy portfolio manager and Chief Investment Officer at BP Capital Fund Advisors (BPCFA), an energy-focused long-only investment management firm.
Under Mark’s leadership, BPCFA grew from $50mm to nearly $400mm in assets under management in less than 3 years. BPCFA’s energy strategy was the #1 performing energy open-end mutual fund, as ranked by Morningstar, from 12/31/13 to 12/31/16, and its MLP strategy was in the top decile in its Morningstar category over that same time period.
Mark has 13 years of additional portfolio manager experience at Van Kampen, Morgan Stanley and Invesco. As part of a diversified large cap value strategy, Mark managed more than $10 billion and has managed energy portfolios for more than 12 years. While at Morgan Stanley Investment Management, Mark served as the internal head of equity investment research.
Mark earned an MBA/MA in Finance from the Wharton School of Business at the University of Pennsylvania and a BA in History from Swarthmore College
Brad Olsen, Co-founder and Managing Director
Before founding Recurrent Investment Advisors LLC, Brad was the lead MLP portfolio manager for BP Capital Fund Advisors (BPCFA). Under Brad’s leadership, MLP AUM more than doubled (excluding the impact of appreciation).
From 2011 to 2015, Brad led Midstream Research for Tudor, Pickering, Holt & Co. (TPH & Co.), where he was recognized as the top all-around stock picker in the US by the Financial Times in 2013, and the top energy stock picker in the US by Starmine in 2014.
Brad also has experience as an investment analyst at Eagle Global Advisors in Houston, where he was part of a 3-person team that grew midstream/MLP AUM from $300mm to over $1bn from 2008 through 2011. He has also worked in investment roles at Millennium International and Strome Investment Management. He began his career in the UBS Investment Banking Global Energy Group in Houston.
Brad earned a BA in Philosophy, Political Science, and Slavic Studies from Rice University in Houston.
Statistics & Commentary
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and the principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.
Sector Breakdown as a % of AUMas of 31/01/2019
Geographical exposure as a % of AUMas of 28/02/2019
Portfolio Characteristicsas of 28/02/2019
|No. of securities||40||89|
|Estimated Long Term Growth||8.5x||8.0x|
|Price to Book Ratio||1.5x||1.4x|
|Price to Sales Ratio||0.7x||0.8x|
|Weighted Market Cap ($bn)||56.6||70.3|
|Median Market Cap ($bn)||18.7||18.2|
|Active Share (%)||52.0||-|
Top 10 Position Detailsas of 28/02/2019
|Security name||Sector||% AUM|
|BHP Group LTD-SPON Adr||Metals & Mining||5.13|
|Fortescue Metals Group Ltd||Metals & Mining||4.38|
|Rio Tinto PLC-SPON Adr||Metals & Mining||4.01|
|UPM-Kymmene OYJ||Paper & Forest Products||3.94|
|Glencore Plc||Metals & Mining||3.85|
|Kinder Morgan Inc||Oil, Gas & Consumable Fuels||3.74|
|Total SA-SPON Adr||Oil, Gas & Consumable Fuels||3.68|
|Energy Transfer LP||Oil, Gas & Consumable Fuels||3.67|
|Exxon Mobil Cor||Oil, Gas & Consumable Fuels||3.46|
Investment Manager's Commentaryas of 28/02/2019
Market Review and Outlook
During the month of February, base metals and crude oil prices rose, while precious metals and agricultural commodities prices largely fell. Nickel, copper and crude oil prices each rose more than 5% in the month of February, and nickel and crude oil prices have risen more than 20% year to date, yet still remain broadly depressed compared to 2H 2018 levels, reflecting the volatility of December and January.
The Alma Recurrent Global Natural Resources strategy rose 2.2% (net) in February, outpacing the 1.5% rise of the S&P Global North American Natural Resources Index. During the month, global iron ore prices rose in reaction to the reduction of Brazilian supply as a result of the dam disaster. Among global iron ore producers, the Australian Fortescue Metals Group (FMG AU) has the unique ability to make up for the lost Brazilian supply, and rose by more than 12% during the month. Additionally, iincreased copper prices, combined with inexpensive valuations, helped portfolio holding Freeport McMoran (FCX) to rise nearly 11%. Lastly, the benchmark Western Canadian oil price rose from a low of $13 in November to close February at more than $45/barrel, boosting Cenovus Energy (CVE) by more than 17% during the month.
Natural Resources Discussion – Natural Resources Discussion – Global oil and base metal fundamentals continue to recover after investor concerns peaked late in 2018. Combined with attractive valuations, the similarities to 1H 2016 continue, providing a constructive backdrop for 1H 2019.
Every February, E&P capital budgets are announced, and fiercely debated and analyzed, given their importance to the energy sector. And every year, it seems that E&Ps simply respond to prevailing oil prices – when prices are high, drilling increases; when prices fall, so does drilling activity. A superficial look at 2019 budgets indicates that business continues as usual – oil prices declined 15-20% year over year, and capital budgets came down by comparable magnitude. Acknowledging the superficial similarity to years past, 2019 was different for a key reason: many E&Ps viewed as having the “best acreage” or “highest return wells” announced capex cuts that were equally, and in some cases more dramatic vs. companies perceived as having “second tier” assets. Given the consensus wisdom that “best acreage” = “lowest breakeven” cost of production, it seems to defy economic logic that resources with better economics would yield to those with inferior economics. Why, we ask, with a goldilocks oil price of $55/bbl, did companies that had previously refused to yield to $40/bbl oil, now cut back on drilling?
We offer a differentiated explanation for why companies with “quality acreage” are cutting capex in an unprecedented way. In stark contrast to many of our competitors, who believe that “cost of supply” is determined solely by “quality of acreage,” we believe that there are several equally-important variables – of which “acreage quality” is only one – that determine whether a given resource is “economically worthy” of further investment. Dramatically, we believe that even for the best assets in North America, even a modest combination of debt leverage and high legacy declines can offset the benefits of acreage quality, forcing the “highest quality acreage” companies to restrain growth in even high-return assets.
We would argue that in 2019, we’ve seen many E&Ps with world class assets reduced to near-passivity as a result of simultaneously “managing the balance sheet” and “managing declines.” High declines obligate a producer to invest large amounts of capital to simply keep production flat. This is crucial since letting production fall exacerbates debt ratios.
February 2019: An E&P budgeting season like any other?
During February earnings calls, oil and gas producers (E&Ps) typically announce drilling and capital spending plans for the coming year. E&P budgeting always has a meaningful impact on a wide array of energy stocks – E&P capex becomes oilfield services revenue, and the production generated drives midstream revenue in turn. While budgets are fiercely debated (and traded) by investors, an outside observer would be forgiven for thinking that budgeting is nothing more than a knee jerk response to price: “oil price up = spend more / oil price down = spend less.”
As we’ve noted in previous monthlies, the prolific and rapid response of shale resources in North America have created an unmistakable pattern: summertime peak oil demand creates price spikes, and North American producers respond with post-summer surges in production. After the summer peak, prices collapse. In the second half of 2014, 2016 and 2018 (the 2 year interval has been strangely consistent) – production surges have created massive downdrafts in the global price of oil. In each case, within 6 months, we’ve seen oil stage meaningful rallies as producers have vowed to cut back during budgeting season in 2015, 2017 and now another rally underway in 2019.
Given the painful rollercoaster created by oil price volatility, the market has responded to untimely E&P-driven supply surges by steadily de-rating the E&P sector, with valuations declining as a result (EV/ acre and EV/EBITDA both declining meaningfully since 2016, long after the commodity rout took hold). Many investors have demanded “greater capital discipline” from the E&P space, as hopes that E&Ps would “grow into” either greater profit per barrel or profit per share have been dashed by the volatile seasonality of crude. For many, “greater capital discipline” was supposed to lead to an orderly world where high-return assets would continue to see capital investment, while higher-cost assets would not.
But that’s not exactly what happened – return profiles have not been the determinant of YTD capital flows. Capital, in fact, has ignored acreage quality and sought (low) base declines, acreage quality be damned. Gone from the February performance leaderboard of the S&P Oil and Gas E&P Index (XOP) are the high-growth Permian companies; instead, it reads like a “pre-shale E&P Hall of Fame”: Murphy, Exxon, Chevron, Marathon, California Resources, Hess; meanwhile, at the bottom of the list, we see names of “acreage quality all-stars” and companies with the “right zip code” such as Centennial, Antero, Concho, Matador, Laredo. Highly manageable base declines are the only unifying theme among the former group; high decline rates define the second (despite varying amounts of debt).
But debt matters for reinvestment decisions too, particularly in times of financial austerity. The more debt leverage, the more a company is forced to tighten its belt in order to meet financial goals. In the case of the E&P sector, we looked to see if there was a correlation between debt leverage and 2019 CAPEX reductions, all within the scope of the aforementioned E&Ps, many of which are relatively large companies, with diverse operations.
Unsurprisingly, the impact of debt does seem to have some causal relationship to the degree to which CAPEX was reduced. Inherently, while this does make sense, the strength of the relationship is not strong enough to lead us to believe that debt leverage is the only factor determining the size of the CAPEX reduction.
Since the reduction of CAPEX is such an important change of strategic direction in the energy industry, we will continue to explore other factors which influence the size and scope of E&P CAPEX.
Facts & Documents
Fund Domicile: Luxembourg
Management Fee: 0.95% p.a. for I shares
Fund Type: UCITS SICAV
Fund Launch: 29 June 2018
Base Currency: USD
Depositary, Administrator, Transfert Agent: BNP Paribas Securities Services (LU)
Dealing: Each day with a 1-day notice
Cut-off time: 12 pm CET
Management Company: Alma Capital Investment Management (LU)
Investment Manager: Recurrent Investment Management (LU)
Fund Managers: Mark Laskin & Bradley Olsen
Countries where the fund is registered:
Institutional USD Capitalisation share class
ISIN: LU1823602369 Ticker: ARGNIUC LX Launch: 29 Jun 2018
Institutional EUR Capitalisation share class
ISIN: LU1845388146 Ticker: ARGNIEC LX Launch: 29 Jun 2018
available upon request