17th September 2021
Wikipedia tells me that “The Little Engine That Could” is an American folktale used to teach children the value of optimism and hard work. (For some reason, I have conflated that story with those of Thomas the Tank Engine). The metaphor for some of our holdings is apt – and certainly for the subject of this week’s Crescendo: uranium (or rather uranium miners).
We make sure our investors know that our “edge” can be boiled down to a few factors:
- A very disciplined process that stops our emotions from taking over and avoids market-timing
- Having an armoury that is fuller than our peers’ (i.e. don’t get so big that our portfolios have to be limited to the most liquid securities)
- Hard work
So the metaphor above could also apply to the Hawksmoor Funds (little engines that can… beating all the big slow ugly engines by dint of hard work, nimbleness and discipline) but I know that our sales and marketing team would prefer a much slicker metaphor. Anyway, I digress and I am revealing why I keep myself out of sales and marketing decisions.
When observing our portfolios, we are sometimes asked “what’s the point of having small positions of 1% and below?” It is utterly remarkable what a difference these can make, and we have one such position in our Global Opportunities Fund: an investment trust called Geiger Counter. It has gone up six times since the March 2020 lows, and nearly doubled in the last month, but we keep its weighting at around 1%.
It’s a complete tiddler – a market cap of just £76m even after the incredible recent run. It owns uranium miners, and is the only way to play the nuclear theme via an externally-managed closed-ended fund. We like it for several reasons:
- Thematically, we love nuclear power. It is the only carbon-free large-scale source of base load power for national grids globally. As carbon-intensive fuels are phased out, and variable renewable power sources proliferate, the increasing importance of nuclear power is obvious to us.
- Political headwinds have blown strongly in the wake of the Fukushima disaster, and dramatisations of the Chernobyl disaster in the UK haven’t helped either. But nuclear power has killed far less people than coal ever has, and as with most things – it’s perfectly safe when safety protocols are followed. These political headwinds are waning as the glaring advantages of nuclear power are highlighted with the need to lower carbon emissions, with nuclear power stations across Europe and Asia sitting idle.
- China and India aren’t messing about and are building a huge number of nuclear power stations.
Uranium is the key fuel, and is relatively easy to get out of the ground. The uranium price has been becalmed for a long time due to the issues above: demand has not been high enough. This over-simplifies the situation, but we’ll lose readers if we start going into too much detail with the investment case! Prices need to rise to make some mines come on-line again (at such low prices, and with utility companies having locked in supply contracts there was no point in the miners operating many mines).
In other words, to torture another analogy, this was an investment case equivalent to a great big pile of dry kindling begging for a match. Recently that match was lit and thrown into the pile. A company called Sprott launched a vehicle that enabled investors to easily buy uranium and bet on this theme. It has become popular, and it has been buying up uranium supplies. Lazy utilities are suddenly realising they might need to increase their inventories or they won’t have enough uranium to power their stations – and this is before the nuclear thematic takes hold.
So we have the catalyst, and this has led to explosive self-fulfilling strength in the uranium price. We believe there is a huge amount of upside left though (even if the price may cool down at some point). Utilities are price-takers and price insensitive. The raw material is a relatively small part of overall costs (2-3%), and the nuclear plants are no good without it.
Hence, this little position in our Global Opportunities Fund is, on its own, meaningfully contributing to overall performance and, in the highly competitive world of fund management, it is helping drive us up the performance tables, with the Fund in the top decile since launch.
Global Opportunities Fund is three years old on Saturday, so watch out for some publicity from us. We’re delighted with the performance of the Fund, but cognisant that we are running a race that never ends, and we’ll keep trying our best to find more Little Engines That Can – via hard work, and never allowing our funds to get so big that such positions can’t make a difference.
Ben Conway – Head of Fund Management
This financial promotion is issued by Hawksmoor Fund Managers which is a trading name of Hawksmoor Investment Management (“Hawksmoor”). Hawksmoor is authorised and regulated by the Financial Conduct Authority. Hawksmoor’s registered office is 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. Company Number: 6307442. This document does not constitute an offer or invitation to any person, nor should its content be interpreted as investment or tax advice for which you should consult your financial adviser and/or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. Any opinion expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represents the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. HA4545.