Fund Performance
The month of May was good for us and our clients. Our managed accounts returned 9.45% (non-compounded) during May, which brought our gross performance year-to-date to 47.10%.
Here is our performance (non-compounded, gross):
January: 16.27%
February: 2.35%
March: 16.60%
April: 2.43%
May: 9.45%
Year to date: 47.10%
The volatility of the performance was low (which is how we like it), and the gains were steady throughout the month. A major contribution to the returns came from the Uranium ETF (URA), which we had been overweight before the executive orders were signed by the president, as well as a handful of mining stocks, including Contango Ore (CTGO), Sonoro Gold (SMOFF), and Abrasilver Resource (ABBRF), among others.
We continue to be a bit underinvested (about 80%) due to the major overvaluation of the overall stock market and some overbought conditions in some of our holdings. Our portfolio remains balanced between natural resource stock ETFs and individual stocks in gold, silver, copper, and rare earth metals, as well as traditional and alternative energy equities globally. While we remain extremely bullish on natural resources, a correction in some of the industries may be expected during the summer months. We utilize natural resource ETFs to navigate bearish periods, control portfolio volatility, and manage drawdowns.
As they say on Wall Street: Don’t confuse a bull market with a skill. Risk management will always remain our top priority.
The following table illustrates the current state of overall stock market valuations. Just about every metric you can think of is at historic highs, which, over the last 100 years, have led to miserable performance for the S&P 500 going forward 5 to 10 years. This is certainly not a timing tool, but if you are a longer-term investor, those conditions should not be ignored. Most sectors are priced for perfection at a time when the economy is highly uncertain.
Currently, the trading algorithms of most hedge funds are programmed to take the indexes to all-time highs, but anything beyond that is a huge question mark. In our opinion, instead of celebrating the new highs, investors and traders should use this opportunity to hedge their portfolios, reduce their holdings, or simply exit major indexes.
The case for Natural Resource Stocks investing and trading remains very strong for two significant reasons:
- Demand and Scarcity: We anticipate that the world is entering a period of resource scarcity due to the underdevelopment of natural resources within global systems, the global order, and global supply chains. It is now more crucial than ever to comprehend the opportunities and risks associated with natural resource investing.
- Value Investment: We genuinely believe that value investing is making a comeback, and long-term investments with short-term derivatives overlay in natural resource stocks represent a unique niche. The chart below illustrates the most significant disparity between growth and value stocks since 1999.
The Case for Energy Stocks
Uncertainty around President Trump’s shifting tariff policy has investors wondering where to find stability and which sectors could see a strong rebound. A clear standout is energy.
The average P/E ratio of energy stocks is around 13, compared to the S&P 500’s in the high 20s. Energy stocks’ dividend yields are close to 4%, which is approximately three times larger than the S&P 500. If we take a long-term view, they look very attractive from the fundamental standpoint. But even a short-term picture looks bullish when applying technical analysis.
The following chart of XLE (Energy sector) illustrates a bullish coiling pattern:
Once again, the latest bullish leg of the market was driven by momentum in overvalued tech stocks, while the energy was forgotten. We expect XLE to start working its way higher toward the recent highs in the mid-90s levels. We remain overweight in energy (both traditional and alternative). There are tremendous opportunities in the energy sector, especially in the small-cap space.
If you would like to find out more about our investment program, please get in touch with our portfolio manager, Dennis Leontyev, at Dennis@NaturalResourceStocks.net
