Monthly commentary - Mackenzie Resource Team

Written by the Mackenzie Resource Team

Global Resource Fund - Portfolio Insights 

• The energy sector contributed to performance, with natural gas and energy services outperforming, whereas equity selection did offset weakness in the materials sector in the fourth quarter.
• The Fund’s substantial overweight position in natural gas producers Tourmaline and ARC Resources benefited from a seasonal pickup in natural gas prices, but also from the start-up of new LNG terminals in the US and Canada, which are expected to add substantial demand to the North American gas market. Oil & gas producer Paramount also benefited from a strategic asset sale to strengthen returns to shareholders.
• Global chemicals continue to suffer from overcapacity and weak demand, but Methanol markets are supported by tight supply, with Methanex up substantially, offering global leadership and acting as an industry consolidator.
• Residential construction continues to be weak and oversupplied lumber markets negatively affected core holding Interfor Corporation.
• The portfolio managers reduced some of the gold equity exposure, reflecting continued struggles of gold producers, such as Barrick, to deliver into high gold prices.

Precious Metals Fund - Portfolio Insights 

• Gold bullion prices were up 27.2% during 2024 (38.6% in CAD), driven by continued physical buying in Asia, cresting interest rates, and geopolitical strife. Gold equity performance showed a very wide dispersion, which resulted in the actively managed Mackenzie Precious Metal Fund outperforming its benchmark. Generally disappointing equity performance in 2024 leaves open the opportunity for a catch up rally in 2025.
• The Fund’s avoidance of the largest gold producer, Newmont Mining which was down sharply in the quarter contributed to relative outperformance, especially in contrast with the Fund’s largest holding, Agnico-Eagle Mines which was up in the quarter. These sharply differentiated outcomes reflect the value destruction from Newmont’s misguided M&A, inconsistent dividend policy, and poor operational controls.
• Aya Gold & Silver gave back part of its outperformance as silver grades at its expanded mining operations disappointed market expectations.
• The portfolio managers increased the position in global gold producer Anglogold Ashanti, exploiting weakness in its share price following its surprising acquisition of Centamin.
• A core silver position in the Fund, SilverCrest Metals, is being acquired in an all-equity takeover by Coeur Mining. To reduce concentration in the combined entity, some profit was taken.

The Second Trump Presidency

• The election of Donald Trump brought the prospects of a stronger US economy and smaller trade deficits with the rest of the world, which propelled US markets and the dollar higher. These prospects also invited higher inflation expectations and interest rates going forward. Looser regulation on the bank and energy sectors resulted in meaningful performance divergence post election: The financial sector moved largely higher on a loosening of bank regulations, whereas the energy sector went lower as looser regulation could also mean more supply.
• While Republicans have promised a more efficient government going forward, they also promised broad support to local industries. We expect inflation to move higher as imports are replaced by locally made goods. Rising tariffs could also cause disruptions in parts of the global industrial chain making it difficult to rapidly execute on this new industrial policy. Over time, additional productive capacity will be added in the US and its preferred trading partners, while we expect industrial utilization will drop for countries not making the “club”.
• In a tit-for-tat approach, we suspect the world will respond to the US tariff threat by implementing their own industrial policies and trade barriers. The first derivative of US centrism will promote industrial production not only in the US but also for its favored trading partners (but not China). While this approach may not be most efficient, and likely will cost dearly, it may boost fixed asset investments away from low-cost geographies such as China. Inflation has likely seen the low in 2024 and is headed higher in the developed world, especially with a cycle of large fixed-asset investments upon us. Commodities are essential to those investment decisions and remain an essential component of inflation protection for investors.

China

• Chinese monetary and fiscal stimulus initiatives have failed to re-ignite its economy though the prospect of deep economic distress may have been avoided. However, the Chinese economy remains highly dependent on exports and will likely suffer from rising trading barriers across the globe. An orchestrated transition from an export-lead to consumer-lead economy seems too far away, putting the Chinese government at a very difficult juncture. Our base case does not see a meaningful acceleration in fixed asset investment in China for 2025.

Oil & Natural Gas

• Chinese oil demand continued its downtrend, with October/November data further anchoring gasoline and diesel consumption at lower levels. After making much noise, Saudi Arabia has delayed its production increase; OPEC members will need to negotiate between themselves as to who gets a larger share of quota limits. Positioning in oil futures suggests that market participants have largely priced in a bearish scenario, as there are currently no signs of higher consumption or lower supply. We are actively watching for changes to this narrative, notably, Iranian sanctions being enforced by the new US administration or lower shipments by OPEC or Russia. Until then, oil prices are unlikely to break away from the current range in 2025.
• Conversely, global gas consumption continues to move higher. 2025 should be another year of strong demand growth with several new LNG facilities starting in the US and Canada. One of the largest terminals, Plaquemines on the US gulf coast, started production in December. More capacity is expected to be brought online over the next three years. 

Gold

• After a roaring start in 2024, gold prices plateaued at an elevated level. The Chinese central bank resumed its aggressive buying in November and December after a purported pause due to high prices. Local Chinese investors are further supporting gold with continued gold purchases as local housing and stock markets remain unattractive alternatives.
• So far, western world investors interest in gold remains muted, likely due to the attractive performance of their stock markets, as well as the relatively high treasury yields.  Hopes for an end to the US hiking cycle proved to be short-lived with inflation seemingly finding a floor well above historical levels.  US economic activity continues to run hot, while Trump’s policy mix of tax cuts, deregulation and tariffs will most likely reinforce the already well-anchored inflation.  A rising inflationary environment is most likely to push real rates lower in 2025, and push gold higher.
• Gold producers’ share prices continue to struggle with operating cost pressures, reserve replacement costs, and geopolitical uncertainty. However, many gold producing regions (e.g., Canada, Australia and Brazil) saw meaningful currency weakness in Q4, pushing local currency gold prices to new highs.
• Precious metal equity performance showed a very wide dispersion in 2024, widening the gap between the ‘Haves’ and ‘Have Nots’.  Key drivers are capital allocation (consistent returns of capital are rewarded), M&A (often value destructive), operational discipline, currency exposure (local currency benefits for Australian and Canadian operations) and country exposure (e.g. West African political unrest causing dislocations).  Generally disappointing equity performance in 2024 leaves open the opportunity for a catch-up rally in 2025 and the importance of active management. 

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This document may contain forward-looking information which reflect our or third party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of Dec 31, 2024. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.