Metals and commodities have taken a turn higher this year, and several funds are capitalizing on these movements. The Silk Road-focused Sturgeon Capital was already enjoying gains from its positions in copper and a number of mining companies, and in February, the fund raised its holdings in the sector. Copper in particular has been turning heads this year, and Sturgeon is no exception.
If things continue as they are, it could be a good move for Sturgeon, based on the hefty 29% return posted by Regal Capital’s Atlantic Absolute Return Fund, which was driven by mining and resources stocks last month.
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Kazakhstan, oil and copper were the big winners
Sturgeon Capital was up 1.05% for February, driven by developments in Kazakhstan and mining stocks. February's gain follows a 7.2% gain in January. The Kazakh Index climbed 6.23% during February, significantly outperforming the rest of the fund's coverage area. The MSCI Russia index was up 0.75%, and the MSCI Turkey index slid 0.16%. The MSCI Frontier Markets index gained 2.92%.
As far as currencies, the Kazakh tenge gained 0.83% in February, while the Russian ruble was up 0.93% and the Georgian lari held mostly flat. Copper prices were up 7.75% in February, and Brent oil gained 8.89%. Gold prices were up 1.85% for February.
In their February report, which was reviewed by ValueWalk, the Sturgeon team said constructive negotiations on the U.S.-China trade war bolstered sentiment. The U.S. Federal Reserve confirmed its dovish position, which has helped as well. Chinese officials also helped market sentiment with new stimulus measures designed to soften their economy's deceleration. Due to these factors, commodities and emerging markets stocks outperformed during February.
Moving into Uzbekistan
The Sturgeon Capital team is working on a "listed investment vehicle" designed to tap into opportunities in the Uzbekistan market. The nation issued its first Eurobond with a 4.75% indicative yield for the five-year issue and 5.375% yield for the 10-year bond. Sturgeon organized a trip to Uzbekistan in February to speak with a number of companies and highlight the major changes that are underway there right now.
"Uzbekistan is one of the few countries who is enjoying its 'fall of the Berlin wall moment' and Tashkent is buzzing with excitement," the fund's management explained. "However, since capital markets and the financial sector are still nascent, lack of funding is keeping asset prices low. Valuations are undemanding despite high growth rates and limited competition and talented management."
Adding to mining and metals
The Sturgeon Capital team added to their metals and mining allocations during February due to strong commodity performance, especially copper. The Fed's decision to pause interest rate hikes and reduce its balance sheet should cut the dollar's value, boosting commodities and other risky assets in turn.
The fund used the recent Turkish rebound to cut back its allocation there. Management expects some weakness in the Turkish lira around the March 30 elections. They also cut their Kazakh allocation by "reducing an illiquid stock without much upside potential."
The fund's best-performing positions were Turquoise Hill Resources, Halyk Bank and Kaz Minerals. Kaz posted strong earnings numbers for fiscal 2018, including production numbers for copper that were toward the high end of its guidance.
Sturgeon's worst-performing positions were DP Eurasia, Georgia Healthcare Group and Georgia Mining. Georgia Healthcare reported solid earnings results with strong gains in revenue and EBITDA. Following a heavy cycle of capital expenditures, the company continues to gain market share and boost occupancy rates in its hospitals.
The fund's top holdings in February were Liberty Bank, TCS Group, Halyk Savings Bank, Kaz Minerals, Centerra Gold, TBC Bank, KazTransOil, Turquoise Hill Resources, Ros Agro and Yandex.
This article first appeared on ValueWalk Premium
