In parallel, unprecedented levels of Private Equity interest led to the buy-out by IFM investors, the Australian pension fund, of Buckeye Partners and several announcements of asset sales from other operators. The Fund’s energy infrastructure strategy outperformed the index by 4%. Buckeye Partners (+22%) was the major contributor but both Magellan Midstream and Kinder Morgan added more than 5%. Western Midstream posted flat returns as it is caught in the Anadarko/Occidental saga but rebounded towards quarter end as it became clear that Occidental will be seeking to dispose of its stake in the MLP.
During the quarter, we reduced exposure to the energy infrastructure component while keeping other infrastructure exposure stable and initiating a position in Iron Mountain, the document storage and data centre REIT. We exited our units in Buckeye Partners on the day the transaction was announced. Overall exposure to infrastructure declined to 17.5%, while the energy infrastructure subsector fell to 12.3% of assets.
Gold bullion prices broke above the multi-year resistance level at $1400 during the quarter and posted an overall 9.1% increase as ETF investors’ flows resumed again in May and added a total of 59 tonnes for the period. Market positioning, according to CFTC data, continued to offer support as interest in other “alternative” assets such as Bitcoin (+200% for the quarter) increased to record levels. Gold stocks, as measured by the FTSE Gold mines index, surged another 17.4% in a low-volatility regime and continued to outperform almost every other asset over the last three quarters. A major shareholder of Osisko Gold and the company management agreed on an asset-swap deal which saw a significant stake being sold at below market prices. Other mining stocks added 2%. Franco-Nevada and Royal Gold underperformed as stock prices increased by 13% on average while Osisko Gold declined by 6.7% in USD.
During the period, we reduced exposure to gold bullion by 1% while keeping exposure to gold stocks stable. At the end of June, gold bullion exposure stood at 8.7% while allocation to royalties represented 4.6% of fund’s assets.
Timber equities had another volatile quarter as continued weakness in U.S. housing led to increased pressure on both timber REITS and wood producers. Companies took decisive actions and curtailed production in British Columbia mills in a synchronized effort to stabilize the market.