Monthly Report: International Fund August 2023
31/08/2023
International Fund August Monthly Report
While August was a weak month for global stock markets, an even weaker Australian dollar more than offset the decline. The Forager International Shares Fund notched up a gain of 0.9% for the month, just shy of the 1.1% return from the MSCI World Investable Market Index.
Share price appreciation associated with a takeover offer for Blancco (AIM:BLTG) added more than 1% to Fund returns for the month (see the July monthly report). The shares are currently trading at a small premium to the takeover offer. The bidder, Francisco Partners, hasn’t gained any traction beyond the three largest shareholders that had already committed to selling their cumulative 47% stake when the deal was first announced. We’re now slightly more hopeful that enough shareholders might join us in vetoing the current deal but, with the deadline for acceptance still a month away, it is too early to have any confidence.
The uranium price is up almost 10% since the start of August and is now up 27% so far in 2023, bolstering the Fund’s investment in the Sprott Physical Uranium Trust (TSX:U.UN). This investment is part of a broader commodities basket intended to provide a useful hedge against inflation. The Fund has slowly increased its investment in this owner of physical uranium over the past two years, with it now representing 2.3% of the Fund’s assets. After 15 years of next to no investment in uranium mining assets, our view is that the price needs to rise further to encourage enough mining to meet the world’s growing needs.
Nuclear power is controversial. But it’s likely an important piece of the decarbonisation puzzle. Wind, solar and other intermittent renewable sources of energy will only get us so far. Environmentally-conscious Germany, which recently decommissioned its last nuclear plant, is now burning more coal instead. In contrast, California has pushed back its plan to shutter the Diablo Canyon reactors for at least a decade. Additional reactor life extensions are being granted across the US, UK and Japan. Political support for nuclear power has also turned a corner since 2022, with the US and EU now classifying it as a clean/green energy source.
But this story isn’t really centred on the West. After 20 years of almost no new nuclear reactors being built across the world, 40 are set to be completed between 2024 and 2027 (largely driven by India and China, where nuclear power has become a core to their emissions reduction and pollution control strategies). Further out, there are 19 additional reactors under construction and 425 new reactors planned or proposed across 31 countries.
Even without these new reactors, current demand sits well above existing uranium production (the gap having been met by stockpile depletion). Some of the world’s largest uranium producers, such as Kazatomprom (KAS:KZAP) and Cameco (TSX:CCO) have missed production targets and downgraded guidance.
The investment case for higher uranium prices has been doing the rounds for a decade. While the recovery was set back by the Fukushima disaster, it’s our belief that this has only exacerbated the underinvestment in future production.
An investment in Sprott Physical Uranium Trust (a closed-ended trust that owns physical uranium) gives the Fund direct exposure to the uranium price without the risks associated with miners themselves. If we’re right about a significantly higher uranium price, there will undoubtedly be miners and mining explorers that prove to be wonderful investments. In our experience, there will also be plenty that end up losing money whether the uranium price rises or not. It is our preference to keep it simple, and Sprott is as simple as it gets.
Backing out currency and the Blancco contribution, the rest of the portfolio was down a touch more than 4% for the month. Open Lending (Nasdaq:LPRO) and Taskus (Nasdaq:TASK) were the two most significant detractors, delivering good results for the June quarter but warning that the second half of the calendar year looks difficult. Even some of those that exceeded market expectations saw their share prices fall, like Canadian manufacturer Linamar (TSX:LNR). With stock markets around the world rising strongly so far in 2023, some negativity is welcome.
