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 is focused on understanding and profiting from commodity cycles to make differentiated natural resource investments
Formed in April 2017. Registered as an investment adviser with the U.S. Securities and Exchange Commission (SEC)
Primarily owned by its co-founders Mark Laskin and Bradley Olsen, who both have extensive experience in finance and energy
Based in Houston, Texas (US)
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 $1bn from 2008 through 2011. He has also worked in investment roles at Millennium International and Strome Investment Management. He began his career in the UBS Investment Banking Global Energy Group in Houston.
Brad earned a BA in Philosophy, Political Science, and Slavic Studies from Rice University in Houston.
Statistics & Commentary
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and the principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.
Sector Breakdown as a % of AUMas of 30/08/2019
Geographical exposure as a % of AUMas of 30/08/2019
Portfolio Characteristicsas of 30/08/2019
|No. of securities||43||87|
|Estimated Price/Earnings (x)||12.3||13.3|
|Estimated Long Term Growth (%)||5.9||3.4|
|Price to Book Ratio (x)||1.3||1.3|
|Price to Sales Ratio (x)||0.6||0.8|
|Weighted Market Cap ($bn)||50.9||60.9|
|Median Market Cap ($bn)||16.9||16.0|
|Active Share (%)||65.2||-|
Top 10 Position Detailsas of 30/08/2019
|Security name||Sector||% AUM|
|BHP Group LTD-SPON Adr||Metals & Mining||5..07|
|Total SA-SPON Adr||Oil, Gas & Consumable Fuels||4.56|
|Freeport Mcmoran Inc||Metals & Mining||3.85|
|Rio Tinto Plc-Spon Adr||Metals & Mining||3.74|
|Barrick Gold Corp||Metals & Mining||3.68|
|Energy Transfer LP||Oil, Gas & Consumable Fuels||3.39|
|Upm-Kymmene OYJ||Paper & Forest Products||3.38|
|Plains GP Holdings LP-CL A||Oil, Gas & Consumable Fuels||3.16|
|Exxon Mobil Corp||Oil, Gas & Consumable Fuels||3.10|
Investment Manager's Commentaryas of 30/08/2019
Market Review and Outlook
During the month of August, the Alma Recurrent Global Natural Resources Strategy fell by 6.6%, slightly underperforming the S&P Global Natural Resources Index’s 6.5% fall. Global economic growth prospects were dampened as the US-China trade war escalated during the month. Key industrial and agricultural commodities fell as a result, with oil, copper, iron ore, corn and cotton each falling more than 5% during the month. Gold prices rose 8% in August, supporting portfolio holding’s Barrick Gold 19% rise. Stock selection in the Oil and Gas Exploration and Production and Oil Services sectors benefited relative performance, while portfolio holdings in the copper and commodity chemicals sectors detracted from performance.
Natural Resources Discussion
As the US oil and gas shale industry matures, investor perception of the North American energy sector has evolved from a “growth” mindset to a more “returns” based mindset. Interestingly, however, many widely-used valuation methodologies do not really address these desired attributes at all, and instead focus on “discounted cash flows” (which does not incorporate any returns analysis) or a multiple of EBITDA/cash flows/earnings (which does not address free cash flow or returns). As a result, the ability to appropriately value shale-focused Exploration and Production (E&P) companies has proven challenging for many investors.
Given that natural resources is inherently a mature and cyclical industry, we have long believed that comparing the relationship between companies’ return-on-invested-capital (ROIC) and cost of capital (WACC), and comparing that to the enterprise value (EV) relative to the invested capital (IC) has proven to be a valuable valuation methodology. Unlike a “growth” or “value” strategy, the “EV/IC vs ROIC/WACC” methodology seeks to identify companies that are trading below the valuation justified by their actual performance of generating returns vs. their cost of capital.
In short, if a company is able to structurally generate returns in excess of its cost of capital, then it should grow its invested capital. However, if a company is not able to generate returns in excess of its cost of capital, then it should shrink its capital base (by investing at levels below depreciation, paying down debt or returning cash to shareholders) until able to increase its ROIC.
If ROIC > WACC, then the higher growth rate a company can sustainably generate while exceeding its WACC, the higher the warranted valuation multiple. However, if ROIC < WACC, then growth via higher investment actually detracts from the company’s value and lowers the justified multiple. In essence, the company, by growing, is destroying value faster, by not generating ROICs in excess of its WACC, and doing so more quickly. In fact, the most value accretive action would be to shrink its invested capital.
In conclusion, we believe that while EV/EBITDA and DCF-style valuations have long been inappropriate for the E&P sector, the new mantra of “spending within cashflow” similarly misses the key point – the appropriate level of growth (or shrinkage) should be based on companies’ ability to consistently generate returns above the cost of capital. In sectors where growth rates have been consistently elevated, the punishment for lower-than-expected returns can have an outsized impact on valuations.
In the oil services sector, earning premium pricing across the entire company occurs when capacity utilization is high. Changes in oil prices, combined with sustained periods of premium pricing, impacts company-wide profitability. Conversely, when capacity utilization is lower, changes in oil prices offer only incremental opportunities to earn higher profits, and are not as impactful to broader corporate profitability, leading to lower correlations.
From an investment perspective, many investors have asked us why the oil services sector has performed poorly despite oil prices remaining fairly strong since 2017. This review of historical cycles highlighted the industry’s current oversupply and reduced correlation between company EBITDA and oil prices. As a result, until the market’s oversupply is reduced, we view the relationship relative to oil prices to be not be strong enough to be a key predictive indicator of future stock performance.
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