Stockholm (HedgeNordic) – 2024 has been a year of sharp movements for Pensum Global Opportunities, an opportunistic hedge fund managed by Norwegian fund veteran Peter Andersland. After achieving a 14.5 percent gain in the first three quarters, the fund surged 19 percent in October through October 22, before surrendering some gains to close the month with an 8.0 percent increase. The fund’s exposure to uranium and gold mining stocks was the main driver behind its strong performance and subsequent pullback in late October. Nonetheless, Pensum Global Opportunities ended the month as the top-performing Nordic hedge fund, securing a position among the year’s ten best performers in the region.

“Our long book is focused on industries that are either agnostic to the business cycle or do better during an economic contraction than expansion.”

Peter Andersland, co-founder of Norwegian hedge fund house Sector Asset Management, has maintained a bearish market outlook in recent quarters, positioning his portfolio to benefit from an anticipated economic slowdown. “Our long book is focused on industries that are either agnostic to the business cycle or do better during an economic contraction than expansion,” says Andersland. Economic growth has remained resilient in recent years thanks to extreme stimulation during and in the aftermath of the COVID-19 pandemic, according to the hedge fund veteran. Andersland believes an economic contraction is inevitable, “but has been delayed longer than what is typically the case.”

Uranium and Uranium Mining Exposure

Approximately 40 percent of the fund’s long positions are allocated to uranium and uranium mining. “The uranium-focused book experienced a severe drawdown of more than 35 percent from May to early September but rebounded more than 40 percent from the lows in early September by mid-October,” notes Andersland, explaining the fund’s 19 percent gain through October 22. However, a correction of 14 percent followed, leaving October’s gains from this book at three percent.

“The uranium-focused book experienced a severe drawdown of more than 35 percent from May to early September but rebounded more than 40 percent from the lows in early September by mid-October.”

Andersland’s rationale for this exposure is based on the steady demand created by the net growth of new reactors – new constructions outpacing shutdowns. “The construction of new reactors is not typically canceled due to economic downturns,” he explains. Nuclear power, classified as baseload energy, ensures that “when electricity demand drops, utilities are more likely to scale back output from gas-powered plants before reducing nuclear output.” Furthermore, he highlights that “the ongoing nuclear renaissance is boosting near-term demand, as many reactors are being extended for continued operation rather than decommissioned.”

Gold Mining Stocks

Gold mining stocks represent another important theme for Pensum Global Opportunities. “Just like uranium stocks, gold miners rallied around 11 percent into mid-October before a late-month selloff, ending the month up 0.5 percent,” says Andersland. He emphasized the importance of stock selection amid wide dispersion, noting that while Newmont and Barrick fell by 15 percent and 2.9 percent, respectively, Agnico Eagle and Alamos Gold – significant holdings for the fund – gained 7.1 percent and 1.2 percent. “We sold Newmont before their disappointing report and never held Barrick due to its exposure in Mali,” he adds.

“Just like uranium stocks, gold miners rallied around 11 percent into mid-October before a late-month selloff, ending the month up 0.5 percent.”

Andersland views gold mining stocks as a spread trade between the price of gold and the price of energy and industrial commodities. “Gold, as a monetary metal, tends to rise with signs of monetary debasement,” which often coincides with economic downturns as policymakers introduce stimulus measures. “The cost of energy and materials, on the other hand, are procyclical and tend to fall during contractions,” he explains, making gold miners more profitable in such periods.

Silver and Short Positions

A third significant theme in the fund’s long portfolio is its silver and silver mining exposure. “Silver prices had a positive development during the month, and our call options on silver bullion added to the strong performance, as did our holdings in silver mining stocks,” states Andersland. On the short side, the portfolio focused on thematic positions in cyclical industries such as steel manufacturers, copper miners, container shipping, and consumer discretionary sectors. Additionally, the fund held short positions in certain index futures and employed a tail-risk hedge through out-of-the-money puts on high-yield credit. “As a result of the wider decline in the stock market, we received positive contributions from the “short book” as well,” notes Andersland.

“The portfolio carries significant basis risk, as we do not aim to align geography, industry, or style between our long and short positions.”

Although the fund maintains a net equity exposure of negative two percent, Andersland explains that “the portfolio carries significant basis risk, as we do not aim to align geography, industry, or style between our long and short positions.” This approach contributes to the fund’s high return volatility and, notably, its 23.7 percent gain year-to-date through the end of October. “Our goal in portfolio construction is to create the most convex expected payoff profile possible given our view,” concludes Andersland.