Adams Natural Resources Fund: Investing in Energy, Materials, and Metals.

The Adams Natural Resources Fund (NYSE:PEO) is a closed-end fund that invests in energy, materials, and metals & mining industries. PEO has a 64bps expense ratio and is designed to provide investors with exposure to the entire supply chain, from upstream to refining and downstream chemicals.

The Adams Natural Resources Fund (PEO) is a closed-end fund (CEF) that provides investors with exposure to the energy, materials, and metals & mining industries across the entire supply chain, from upstream to refining and downstream chemicals. PEO, launched by Adams Funds in 1929, has consistently provided investors with distributions over the years. The fund charges an expense ratio of 64 basis points (bps) and currently trades at a 10.9% discount to net asset value (NAV), making it an appealing strategy for energy exposure.

PEO is heavily concentrated in the oil & gas industry, with integrated oil & gas (IOC) companies making up 35.1% of the portfolio. Exxon Mobil (XOM) and Chevron (CVX) are the primary holdings in this segment, with Exxon owning 45% of the Stabroek assets in Guyana and Chevron owning 30%. Both companies are strategically positioned for long-term sustainability, investing in new energy resources and future-proofing operations.

The fund's strategy is heavily weighted to the top 10 holdings, making up nearly 63% of the total portfolio weight. PEO has a total of 55 individual holdings, with a minimum distribution yield of 8% on an annualized basis, providing investors an appealing income component.

The oil market may face near-term challenges due to the addition of barrels coming back into the market as OPEC+ releases previously curtailed capacity. However, oil prices haven't experienced significant declines, potentially indicating geopolitical risk supporting current prices. Natural gas prices have improved substantially compared to the previous year, and domestic gas prices may continue to improve as demand picks up, particularly for large-scale data centers.

The European Union (EU) has replenished its underground gas storages to 82.7%, potentially driving demand for liquefied natural gas (LNG) to fulfill additional capacity. The EU is planning to sever ties with Russian gas exports by late 2027, setting the stage for long-term growth for U.S. LNG exports. A trade deal between the U.S. and the EU for the purchase of $750 billion in U.S. energy by 2028 could accelerate the EU’s plans to cut off Russian gas imports, leading to more dependency on U.S. LNG.

PEO is one of the lowest-cost natural resources CEFs with an expense ratio of 64bps. While it has lagged most peers in recent years, it has outperformed when comparing long-term historical performance. PEO's actively managed nature exposes investors to certain risks, including the skills of the portfolio management team and the potential impact of oil and natural gas prices on performance.

In conclusion, PEO can be an appealing long-term investment strategy for investors seeking O&G exposure, given the significant discount to NAV. For those seeking a more diversified strategy while maintaining exposure to PEO, investors may consider the Adams Diversified Equity Fund (ADX), which has 1.9% exposure to PEO.