"I believe market downturns amplify the importance of focusing on companies with high-quality assets, strong balance sheets, and a history of prudent capital allocation, which I've found among select companies in the gold industry," says Nathan Strik, portfolio manager of Fidelity® Select Natural Resources Portfolio (FNARX).
Strik says he's concerned about the impact the spread of the coronavirus may have on natural resources stocks broadly, especially those of energy companies, because global demand for oil has declined due to travel restrictions and economic disruption.
The oil & gas exploration & production subindustry has been especially hard hit, and the fund's exposure to this group has declined year to date through April 30.
He is keeping close watch on the government's evolving response to the coronavirus and its effect on the global economy, believing both will have meaningful implications for the metals-related components of the fund's natural resources benchmark, including gold.
However, Strik maintains optimism for higher-quality gold companies and has roughly doubled his stake in the group so far this year, to nearly 20% of the portfolio.
Among gold producers, he's focused on royalty companies—those that provide funding for cash-strapped gold-mining producers in exchange for royalties (i.e., revenues) based on how much a specific mining project produces.
"The royalty company thus owns deposit-related rights to a mining project, but without owning the land asset itself," Strik explains. "I think these asset-light business models provide the fund with a better risk-reward profile than other gold stocks."
Fidelity® Select Natural Resources Portfolio held securities mentioned in this article on April 30, 2020. As of this date, Franco-Nevada made up 7.75% of the fund's assets, while Agnico Eagle Mines and Barrick Gold accounted for 4.50% and 6.50%, respectively.
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