This commodities veteran has been taking profits on gold and silver. What is he buying?

Commodities are emerging from a “stealth bear market” and positioning for a “very large re-rating”.

This is the view of Daniel Sullivan, Portfolio Manager at Janus Henderson. A mining engineer by training with close to four decades of natural resources experience, Sullivan brings a perspective that combines technical understanding with spreadsheets.

Commodities and resources have been at the centre of investor attention. Talk of a supercycle and years of underinvestment have pushed the sector back into the spotlight. Strong outperformance has only fuelled the interest, raising the question of whether this is temporary or the beginning of a far more durable run.

In this Q&A, Sullivan outlines what he is buying, trimming and adding to his watchlist, why oil demand could surprise to the upside, how self-improvement mergers could unlock value, and why the most powerful phase of the cycle may still be ahead.

What’s your most recent investment and why?

I recently bought some mid-cap global oil & gas companies, including AkerBP (OSE: AKRBP), Santos (ASX: STO), Devon (NYSE: DVN) and Var Energi (OSE: VAR). 

They are very cheap and offer great option value on a change in sentiment around the current very dull oil price. 

I think oil demand will persistently surprise on the upside over the next 3 to 5 years, and current oversupply will get taken up fairly promptly.

Which investment did you add to your watchlist this week?

Devon is a new name for me, we have not owned it in the strategy before. They are merging with Coterra (NYSE: CTRA), this is the type of self-improvement merger that all resource companies need to be pursuing. 

We are in the foothills of a potentially very large re-rating in many commodities after decades of very low commodity inflation. Companies that have the vision and ability to execute large growth transactions now should be well rewarded. 

We have seen moves amongst BHP (ASX: BHP), Rio Tinto (ASX: RIO), Anglo American (LSE: AAL), Glencore (LSE: GLEN), Teck (TSX: TECK.B) and others in the mining space. 

The energy space is still ripe for some mega deal, probably seeing BP (LSE: BP) go into a competitor and Shell (LSE: SHEL) transform in a merger. I think BHP will buy Mosaic (NYSE: MOS), and many of the lithium companies will go into the majors.

What is the most recent investment you have trimmed or sold and what drove this decision?

As the gold and silver re-ratings really accelerated, we have taken some profit and also recycled some positions down into the second major tier of large producers.

What’s your favourite chart or data point from this week?

Natural Resources have had a tough ten years; I call it a stealth bear market. 

With the long awaited gold re-rating driving massive outperformance, we now have a situation where Metals & Mining returns have been better than almost every other major market. 

The last one to beat is NASDAQ, and that is now easily within reach.

What was your weekly high – a standout market moment or highlight?

A week is almost too short even for my natural style, which is quite trader orientated, but over the month we had massive value generation into late January, which was very exciting for our clients and us.

What was your weekly low – a market disappointment or challenge?

The large correction in silver and lesser consolidation in gold have seen much of that short-term outperformance dissipate. 

This isn’t going to matter in 1 month or one to three years' time, but right as it happened, I do wonder if there might have been a better way to hold onto some of that euphoria-generated performance.

What first drew you to markets and what continues to keep you inspired today?

I always like the outdoors and imagined I might be a Forestry or National Parks worker. I travelled to Western Australia when I was 10 and got to see the iron ore, ports, pearls, oil fields and cattle stations, and I have been hooked on natural resources ever since.

What’s one piece of advice you’d give to new investors?

Read the history of the markets, the successes and the fraudsters, it is fascinating and keeps getting recycled into new countries, industries and companies.

How do you unwind when you’re not thinking about the market?

I like to dig ditches and move heavy rocks and logs about the garden, it is good exercise and creative in a simple and quiet way. I grow about 20 kinds of fruit and have heaps of flowers and bees about the place.

Rapid fire! 🔥

Favourite investing book?

• Peter Lynch: Learn to Earn - to understand fundamental stock research. 
• Up the Organisation - to fight bureaucracy. 
• The City Share Pushers - to realise how bad it can all be.

Favourite investing or finance/markets-related podcast?

I am a good reader and a terrible listener, and have not really taken on podcasts; it all feels like advertising to me.

The first thing you read each morning?

My fund performance stock-by-stock breakdown and the news associated with each company.

Favourite restaurant?

The smaller the better, the further from Sydney the better. Halfway to Brisbane or Melbourne where few people go.

Something people are surprised to learn about you?

I work in a global fund and much of my time is spent thinking in those hours, few people in this time zone know much about me, I’m not sure what they are or could be surprised about. 

All I want is world beating returns for them in a consistent way.

Think there’s a better pick? Prove it. Share your rapid-fire book, podcast, and daily read in the comments.

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Janus Henderson Global Natural Resources

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