Ian Cowie: my new investment that has nothing to do with AI

Can artificial intelligence (AI) beat natural stupidity or will the billions being poured into AI data centres never be seen again? 

I don’t know - and neither do you - but I do know that diversification is the simplest and surest way to diminish the risk of stock market investment.

That’s why my new investment trust holding is as far away from large language models (LLMs),  graphics processing units (GPU) and all the other AI acronyms as you can get.

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Never mind so-called data mining, how about the real thing in a hard commodities specialist fund: CQS Natural Resources G&I Ord (LSE:CYN).

Its top underlying asset is NexGen Energy Ltd (TSE:NXE), a uranium miner based in Vancouver, Canada. 

Before you recoil from memories of radioactive accidents at Fukushima in 2011, Chernobyl in 1986, or even Three Mile Island in 1979, do bear in mind that nuclear power is our only renewable energy hope of keeping the lights on when the sun don’t shine and the wind won’t blow. 

Dunkelflaute (a period with little wind or sunlight) be damned but net zero will be no comfort in the cold and dark midwinter.

More positively, NexGen Energy says its “projects are designed ensuring the highest levels of environmental performance incorporating absolute minimalistic expression” at high-grade uranium mines, primarily in the southwestern Athabasca Basin of Saskatchewan.

Another major holding is another Canadian energy outfit, Spartan Delta Corp (TSE:SDE), based at Calgary, Alberta, but focused on oil and liquefied natural gas (LNG). 

The top holdings list also includes Emerald Resources NL (ASX:EMR), a Cambodian gold miner, and Greenland Resources Inc (TSE:MOLY), an Australian gold and copper-producer.

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Another interesting CQS Natural Resources top 10 asset is the shipping group BW LPG Ltd (NYSE:BWLP), which claims to be  “the world’s leading owner and operator of liquefied petroleum gas (LPG) vessels, with a fleet of about 50 Very Large Gas Carriers (VLGCs), including 22 vessels powered by LPG dual fuels”. 

Currently based in Singapore, BW LPG was originally listed in Oslo, Sweden, and points out that LPG is much cleaner energy than most fossil fuels, reducing carbon emissions while the world aims to reduce pollution and climate change.

While we wait to see how that works out, CQS Natural Resources is yielding around 7% in dividend income. 

It is important to be aware that dividends are not guaranteed and can be cut or cancelled without notice. But shares I bought for 348p last month traded at 393p on Tuesday and I think they might have further to go.

One reason is resilient demand for the renewable energy and fossil fuels-based commodities on which this fund is focused. 

Whatever happens next, to AI or anything else, it is difficult to imagine the need for those commodities disappearing. Or, as I may have said before, energy is the economy.

Another consideration is that the co-fund managers have sustained success in trading the various resources businesses they buy and sell. 

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Keith Watson and Robert Crayfourd have both  been at the helm of this fund, albeit with some corporate name changes, since October 2015.

Since then, CQS Natural Resources has delivered total returns of 446% over the last decade; 244% over the last five years; and 93% over the last year. No wonder the shares trade at a modest premium of 2% above their net asset value (NAV).

However, it’s only fair to point out that the trend towards electrification - boosting demand for the super-conductor copper - and soaring oil, LNG and LPG prices have supported share prices across the Commodities and Natural Resources sector. 

Even the returns above were not sufficient to place CQS at the very top of its sector over the last decade or one-year periods, when those top slots were retained by BlackRock World Mining Trust Ord (LSE:BRWM) and Baker Steel Resources Ord (LSE:BSRT) respectively.

BlackRock World Mining delivered total returns over the usual three periods of 448%, 110% and 77%. 

Baker Steel Resources, achieved 382%, 58% and 99%. The former fund yields 2.4% dividend income, while the latter fund yields no income at all.

Investors seeking exposure to this asset class via large, long-established businesses may favour BlackRock World Mining. Its underlying holdings are dominated by giants such as Rio Tinto  Ordinary Shares (LSE:RIO), Glencore (LSE:GLEN) and BHP Group Ltd (LSE:BHP).

By contrast, Baker Steel has shot the lights out over the last year with a more speculative - and successful - approach, with nearly a quarter of its NAV invested in Tungsten West (LSE:TUN), which seeks this valuable metal at Hemerdon Mine Devon on the outskirts of Plymouth.

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Sad to say, wars in Ukraine and the Middle East have increased demand for tungsten. This has the highest melting point of any metal and its density also makes it useful for armour-piercing weapons, among other military uses.

Returning to where we began, it is impossible to tell how the AI investment boom will end. But commodities can deliver capital growth and income here and now, plus some comfort if today’s digital dreams end in a nightmare tomorrow.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in BHP Holdings (BHP) and CQS Natural Resources Growth and Income (CYN) as part of a globally diversified portfolio of investment trusts and other shares.