Specialist hedge fund Delbrook eyes industrial metals and materials for recovery trades
Industrial metals and bulk materials stand to gain from the nascent post-Covid economic recovery according to metals and mining-focused hedge fund Delbrook Capital, while precious metals trades – an investor favourite during market uncertainty – could be starting to run out of steam.
The Vancouver-based firm’s long/short equity-focused strategy, the Delbrook Resource Opportunities Master Fund, generated a 5.3 per cent return last month, posting gains across both long and short positions, with the positive momentum continuing into March.
Among the fund’s successful long trades recently have been Brazilian multinational miner Vale SA, and gold miner Torex, with the former taking positive steps to strengthen its ESG efforts.
“We continue to see a bright path ahead for both companies, given their solid operating performance and free-cash-flow generation,” says Matthew Zabloski, Delbrook founder and CEO, in an update this week.
The fund, which launched in September 2018, combines relative value, event driven and opportunistic investing, trading a range of commodities spanning gold, precious metals, silver, platinum and palladium, as well as base metals such as copper and zinc, industrial metals including iron ore and coal, and energy metals like lithium and uranium.
Since the start of the year, the strategy has advanced more than 6 per cent.
“We continue to prefer the economic recovery narrative to that of prolonged government stimulus and therefore hold higher conviction in industrial metals and bulk materials,” Zabloski says of the prevailing investment environment.
“While not entirely over, the precious metals trade, which worked well during the uncertainty of 2020, looks long in the tooth, with fewer core arguments as to why high conviction directional exposure is needed.”
He points to recent bond yield movements amid the accelerating economic recovery, adding the predicted GDP growth in Q2 suggests momentum “is clearly to the upside.”
“While we hypothesize that broad equities will continue to have somewhat limited short-term downside, given global liquidity levels, we continue to focus on risk mitigation and strengthen our portfolio hedges through inexpensive opportunities in the derivatives market,” he adds.