March Fund Performance & Market Commentary
The Delbrook Resource Opportunities Fund declined -6.7% in March. On a gross basis, long positions returned -10.4% and short positions +1.7%. The Fund’s annualized return since inception is +14.4%.
From a commodity exposure standpoint, base metals comprised 46.8% of the Fund’s exposure, while precious metals accounted for 42.8%. Long positions in mid-capitalization precious metal equities were responsible for the majority of the declines during the month.
On specific names, the Fund increased our long exposure to Torex Gold (TXG) – an intermediate gold producer focused on the Morelos Property, 180 km southwest of Mexico City. Throughout the first quarter tensions with a rival labour union escalated, ultimately forcing a temporary suspension of operations and a >20% drop of TXG’s share price throughout March.
On April 6th the company issued a press release announcing the end of the blockade. On the back of that news, TXG’s share price has increased by approximately 60%.
Moving into the second quarter, here are a few central themes we will be monitoring.
Relative Value: GLD vs GDXJ -- Why are gold stocks so cheap?
As mentioned in our last newsletter, we are closely monitoring the spread between the GLD vs. GDXJ (gold vs gold equities). We believe this gap is unsustainable and we are betting that mean reversion is set to occur. The ETF net flows, which have been heavily in favor of commodity-backed funds, are a good proxy for market sentiment and should provide an early signal as to when the reversal has begun.