The Electrum Fund rose +11.5% during the month (I2 EUR), compared with the EMIX Global Mining Index which rose +11.1% (in Euro terms).
BAKERSTEEL Electrum Fund Anniversary – Three years of investing in the producers of critical “future facing” metals and materials required for the green revolution
It has been three years since Baker Steel launched the BAKERSTEEL Electrum Fund, with the goal of creating an actively managed equity fund investing in the producers, processors and recyclers of future facing speciality metals, alongside selected precious and industrial metals. The Fund’s disciplined investment strategy has a strong focus on value and risk management, alongside a particular focus on ESG research utilising Baker Steel’s proprietary in-house ESG screening and scoring framework.
The Fund has faced turbulent global markets since its launch in March 2019 and has delivered strong relative returns, compared to its peer group and the EMIX Global Mining Index. Fund size has grown to around USD 360m at 31 March 2022 and, alongside the Luxembourg-domiciled UCITS, the Electrum strategy has also been successfully launched as an Australian Unit Trust, as well as a UK OEIC (launch imminent, with seed terms available, please contact Baker Steel for more information).
A core reason for Electrum’s success has been the fact that the themes to which the Fund offers exposure have grown increasingly relevant in the years since the Fund’s launch. Firstly, the transition to net zero has become an increasingly critical challenge for policymakers and investors, with the costs estimated at USD 3-5 trillion (about 3% of global GDP) a year over the coming decades (Source: Goldman Sachs). Appreciation of the quantities of commodities which will be required in order to meet demand forecasts is only just becoming apparent. Secondly, global events have continued to highlight the fragility of global supply chains of critical commodities. The COVID-19 pandemic, which started one year after the Fund’s launch, caused disruption for the production and supply of many commodities, amid an initial demand slump and subsequent strong recovery. More recently, the deeply troubling Russian invasion of Ukraine has once again highlighted the reliance of many developed economies and major global industries on fragile supply chains, particularly in the case of metals and energy.
Both themes signal that sustained inflationary pressure will be a defining feature of the global economy in the coming years, with consumers and businesses already facing significantly higher prices. Inflation has typically been a key driver of higher commodity prices, yet there is a risk that rising production costs will erode miners’ margins. We see evidence that cost inflation is already impacting the mining industry, with many producers facing rising labour and energy costs, and it is here that we see an opportunity for active managers. The Electrum Fund is focused on identifying producers that will disproportionally benefit from a higher cost curve, such as those with independent energy sources (e.g. renewables) which will see margin expansion under a rising energy price environment.
The green revolution will transform the metals and mining industry in the years ahead, and Electrum’s strategy remains positioned to offer exposure to the bull market we believe is just beginning for speciality metals, through a combination of bottom-up stock selection, targeting high quality producers, processors and recyclers, and top-down asset allocation weighting strategically between sub-sectors of the industry. Our investment approach continues to be value-driven and focused on those companies with the best assets, effective management, attractive shareholder returns and that operate in an ethical and sustainable manner in line with our own ESG principles.
You can read more about our views on the opportunities in speciality metals equities and the new green commodity supercycle here.