Al Chu, Man GLG / MGNR

Hi Brad, thanks for having me. So before we get started, why don't we take a little bit of time, learn a little bit about you and a bit about your background. Sure.

I'm a portfolio manager at Mann GLG. Now that sits within the broader Mann Group's discretionary investment unit. This is an alpha-focused alternative manager listed out of the UK. As a part of that, I lead the natural resources strategy out of the New York office. I've been investing in natural resources for a little bit over two decades now. And before Mann Group, I ran the natural resources strategy at BNY Mellon and at various hedge funds. And it's been a really exciting past year because we were able to launch with American Beacon a natural resources ETF into the market.

Yeah. And we're going to talk about that explicitly today. Before we get too much into the business side, I always like to ask people, when you're not behind the desk, when you're not working, any hobbies we like doing for fun?

Oh, yeah. I have two part-time hobbies. One is a part-time bank teller and a chauffeur. Basically, paying for stuff for my kids and driving them around. So, unfortunately, I'm about as boring as you can get.

Yeah. That seems to be the consensus for those of us with kids recently is the Uber to practice and friends. Right. So, let's talk about the Mann Group as a whole. It's an interesting business. So, like, you touched on it briefly, but what all do you do to kind of help clients? And you do a variety of different things. So, can you talk about the firm as a whole? Right.

The firm as a whole, I think there's actually a wide variety of strategies. I think the main cornerstone is that it's active management. And we are very focused on alpha generation. products involved are things like mine, active commodity equities. We have private credit, a lot of fixed income. One of the biggest systematic strategies out there. So, really, I think, runs the gamut. And I think the cornerstone, again, really is alpha generation and delivering that value to our investors.

So, I was actually reading on the website. Right. You guys have a connection to the Oxford Research Lab, which does a lot of machine learning. We've just had on, some AI-driven strategies as well. So, like, how are you, if at all, right, incorporating any of that data into your research or into your investment process? Right.

No, that's a great question. I think as the investment world has been changing, I think it really is a hybridization, right, combining big data and kind of leading-edge analysis. And I think Man Group has been on a lot of the forefronts of that, right, because of the systematic strategies. I think we were some of the early adopters of big data. even myself, where I run a very fundamental strategy and process focused on, supplying demand and company analysis. We are backed by, a very large team of data scientists with a lot of data that the firm possesses and just really cutting-edge technology that helps with our everyday job. And I think it's that kind of evolution where I think we're really delivering a lot of unique excess, returns to investors.

So, is part of, like, and I know you're not on the systematic team. You're on the natural resources side. But are they allowing kind of that type of research to really run this entire strategy and evolve it? Or are there still some kind of human inputs involved? I'm just curious.

Yeah. No, the strategy itself is all fundamental, right? I've been doing this for 20-plus years. And, at the end of the day, I still think that, my opinion and my judgment would be the most important factor. But then again, it's that we do utilize every data that the firm gives us, right? It's a combination, right? We don't rely on any systematic screens or anything. It is, at the end of the day, data, human analysis, human judgment. But we do make it a very data-driven process, right? Meaning it's not, well, I feel like this is going to do well or not do well. It has, I like for my opinions and my decision points to be backed by actual data points.

So the ETF we're going to talk about today is an American Beacon Natural Resources ETF. But can you talk about behind the scenes, like what does your role look like as kind of purely, sub-advisor and portfolio manager to a fund that's run kind of under somebody else's banner, if you will? Like what are your day-to-day roles and responsibilities as, PM? And how are you working collaboratively with them to help, get the fund out there, get it distributed, get it in people's portfolios? Sure.

So I manage it within Man Group. I manage a team of three analysts and myself that's directly works with this fund. And then obviously I'm backed by a big team of traders and data scientists and whatnot. American Beacon has been great partners. They're our distributor in the United States. I think one of the things that I really liked about them when I started launching this fund was that, they – I view them as kind of the experts in active ETFs, right, given their background with Cathie Woods and the ARK products. I think these guys are – have been way ahead of the curve and way ahead of the ball in terms of getting in front of the active ETF movement. So they've been fantastic partners.

Sure. Got it. So let's talk about the ETF, which is MGNR. It's the American Beacon Natural Resources ETF. at a very high level, can you explain the investment strategy and what this fund is really trying to accomplish? Sure.

So the – we – this is a long-only equity product. There's no derivatives, no leverage. And what we invest in is natural resources equities. Now, this is different from a lot of the other products that are in the market in that, one, it's an active ETF, right? I think a lot of the natural resources strategies out there are either passive or passive plus. And I think that is not the optimal way to invest in natural resources. And two is that this is – instead of investing in the underlying futures, this invests in the underlying equities, right? So, for example, rather than investing in oil futures, this would invest in the oil producers or oil field services companies.

Yeah. So can you – so it being an equities fund, which is a little bit different, can you walk us through kind of the investment selection process? How are you identifying investment opportunities? I know you kind of alluded that it was fundamental in nature, but can you kind of dive a little bit deeper into your investment process?

Sure thing. The – I think the cornerstone, the main tenet of this fund really is alpha generation, right? And I think being an alternative asset manager, I think that that point is really prevalent across. I think the investors tend to think of commodities as a, oh, well, it's a broader beta play, correlation of one. There's no – it all goes up and it all goes down. And that really is just not the case, right? If we look at the benchmark, the S&P Global Natural Resources Index or any benchmark, a commodities benchmark, you use the BCOM Index or GSEI. If we take the, one-year back, three-year back, a 10-year back, do good markets, a bad market, and you separate out the top 50 percentile versus the bottom 50 percentile in returns, right?

So just kind of maybe oversimplifying that to make sure I have it right is you're looking for the commodity, favorable commodity cycle at the commodity level, then driving down even deeper to say, okay, which particular part of that, let's just use gold for an example, which particular part of gold is going to do well? And then identifying the best companies in that subsector. That's exactly right, right?

So we take more granularity because there is that dispersion, right? Sometimes we go into different regions, different assets, different parts of the supply chain, but that's absolutely correct. And I think it's that operating and financial leverage taken by the company that really can create excess returns.

So just about how many holdings is the fund, allocated to at any given time? I know it's active, but you kind of have a target or can it go anywhere?

I think a fairly concentrated approach, meaning concentrated, meaning if there are 90 to 100 names in the benchmark, I run 40 to 50. Now, not each position, I don't let positions, individual positions get over 5%. And then we don't over, concentrate into one specific sector, meaning you won't wake up and, say, oh, wow, everything's energy, right? Two-thirds of a sector is the maximum. And then within a subsector, so let's just say metals will be a sector, won't be over two-thirds of the fund. And then within a subsector, something like copper or gold won't get over 25% of the fund.

Staying on weighting for a minute, hearing that, maximum position size is 5% in any one name, I'm sure that that doesn't happen. I'm sure you're not equally weighting every name at 5%. That's the maximum you're going to go. So how are you making those kind of minor asset allocation weighting decisions once you've decided on sector, subsector, company? Is that a conviction thing, data? How are you making that decision?

That's a great question. It's a combination, right? One is liquidity. It's rare to find a very small cap, illiquid name in the top holdings. Just because, again, is that, investing is all about managing the times you're wrong as much as it is about managing what you're right. So if we're wrong, we have to be able to get out. That's liquidity. That's risk management. Two is the conviction level as well, right? Oftentimes, getting conviction to a name is a process, right? It's a journey. It's not a, oh, suddenly all the work's done, T's are crossed and I's are dotted and, there we go. Let's take a big position in, right? So you put a position in.

And one more question on kind of waiting and, where things kind of can get allocated. Is there any guardrails on regional exposure in terms of, overexposure to U.S. or Europe or wherever? Like, do you have guardrails on geographic allocation as well?

Sure. I try to keep this as a vanilla as possible, meaning I love OECD, right? I love rule laws, very developed and very deep liquid markets. 80 to 90% of the listings are OECD U.S., Canada, Australia, Western Europe. There is very little EM and no frontier markets exposure. This is one of those, I want to keep the risk as concentrated into the commodities and natural resources world versus taking something unintended like a sovereign risk for my investors.

So, as you mentioned earlier, the fund is active. So, how often is it? are you looking at this daily changing weights? how often are you, looking at different, shifts in the portfolio in terms of sector, subsector? Are you doing that weekly, monthly, daily? Like, how often are you?

Oh, right. No, that's a we review it daily. Obviously, data is nonstop, right? It's 24 hours, 7. So, if the thesis is developed, obviously, we don't think, a one data point is going to change everything. But, it is a fluid market in commodities. You do have to be active. You do have to be tactical because supply and demand changes does happen. So, we review it on a daily, hourly basis if you want to say. Typical turnover, though, is about 60 to 80%. And that really is just a function of, the commodity cycles, right? We're making various bets. Some work out, at different time frames.

So, you kind of mentioned it there as well. And it leads me into my next question, which is, commodities can be at times like fairly volatile. So, like, how does the fund handle some of those volatile periods? And I guess as well, if there's nothing really that attractive in the marketplace at any time, like, how would you get the fund to be a little bit more defensive in nature? Yeah, I'll answer the last questions first, right?

I think, my experience with the commodities world is that there's typically always something working. There's always a bull and bear market going on somewhere. So, if I don't think there's something that's working, it's probably because I'm not trying hard enough. Typically, there's always something where, I think there could be alpha or there could be an interesting opportunity. In terms of volatility, you're absolutely right. This is a, commodities is not a trending low-vol product, right? But that said, I think that volatility can also be, it's twofold, right? One is that it generates opportunity. For active managers like myself, we don't shy away from volatility. Now, that said, though, my historical volatility is, it's higher than a benchmark but not meaningfully higher, right?

So let's back up and kind of look at commodities and natural resources as a whole. Like what long-term trends or even like future trends in that space are you most excited about kind of on the go forward basis? Sure.

I think one of the things that investors often forget is that, throughout the history of, mankind, we consume a lot of commodities, right? Commodities just really doesn't really go down. If we look at a long-term chart of, agriculture, for example, it's a pretty steady line to the right. Even if we look at something like oil, there are blips, obviously, during the, credit crisis and during COVID. But it's a fairly, like you say, the trending line, right? We tend to eat more, drive more, consume more, build more. Everything is more. And if we look at the longer trend is that, gosh, over the next, two, three decades, we're adding two plus billion people to the world.

So do you ever see a day where, you would incorporate, as things kind of transition into, renewable energy, that being kind of a section of the portfolio you might be investing in, some of these companies that are, their whole business is renewable energy? Like, do you view that as potentially an inclusion as a, I know it's not a commodity, but as an inclusionary into the portfolio at all? Absolutely.

When I think about energy, I tend to think of it holistically, right? I think the misperception is that, well, energy is just oil or it's just natural gas and coal. Realistically, energy is everything, right? It's the food we eat. It's anything that powers us. So renewable, renewable is like, it's going to be an important part of the power stack of the energy supply chain going forward, right? Whether we, people agree with it or not, is that over the next however many years, renewables will gain more and more market share. It is going to be another arm, another leg of the energy, stool. So we do invest in that. And then we invest across the supply chain there, right? It, generation equipment, actual renewable companies, power companies.

Got it. So if you're sitting down, you or your distributor, somebody, selling this fund, right? And an advisor has an already diversified model portfolio. How are you advising them or recommending that they use this ETF? Or how would you even recommend that they, pull out a portion of the allocation towards commodity exposure?

Sure. One of the things I always like to do with somebody selling or distributing this product is, rather than starting off with this is a natural resources, like commodity spend is, I describe the characteristics, right? So here is a very large liquid asset class, one of the most, largest and most liquid in the world, right? It's a real asset class, low correlations, right? Low to very low correlations, not positive, not negative to both debt and equity. It's a positive yielding asset, right? This is one of the highest alpha generation potential debt, like I mentioned earlier. And it's actually a very effective inflation hedge. And usually when I list those qualities out, oh, and it's in a very easy to invest, instrument.

Yeah. And the other thing that makes your fund unique is that it's getting the exposure via equity, right? A lot of the other commodity funds out there, are either buying futures or they might even be fund funds of commodities, right? So I think you even have a more interesting story to grab like a larger market share inside of a model portfolio rather than just kind of being viewed as like an alt, right?

Right, right, right. There are a lot of pros to investing in the equities, right? Oftentimes you get the same commodity correlation, right? A oil company follows oil. It doesn't really, the correlation is higher to oil in the overall market, but yet you do get some equity premium to it. There's always a dividend yields don't go below zero, right? So you always capture that potential zero to positive dividend yield. For ESG concerns, it's, it's easier to, to push for change and to manage and traceability from a company viewpoint versus a generic futures, right?

Yeah, well, Al, I really, really appreciate your time with us today. But before I let you go, where can people learn more about you? Where can people learn more about the fun? They can.

Man Group, our website will have the fun. I have a lot of literature on there as well. White papers and blogs that are written on various topics. American Beacon website, the Resolute American Beacon website will also have a lot of the papers and the filings and whatnot.

Well, again, Al, thank you so much for being here. Great. Thanks for having me again.