Will Smith steps down from City Natural Resources

Mr Watson has been with CQS, which manages the trust, since 2013 and is co-manager of the Geiger Counter (GCL) and Golden Prospect Precious Metals (GPM) investment trusts. He has over 23 years' of resource investment and research experience.

Mr Crayfourd joined CQS in 2011 and has worked as an analyst for the New City managed natural resources funds. Before this he was an analyst focusing on the resources sector.

Ian Francis, who has co-managed City Natural Resources since 2011, will continue in his position. He is also co-manager of New City Energy (NCE) and has worked at CQS since 2007. Mr Francis has extensive investment experience in the income and convertible spheres.

Fund analysts are generally not concerned about Mr Smith's departure as City Natural Resources High Yield uses a team approach to management. "The CQS team has more than enough resources to keep the fund going," says Charles Tan, analyst at Cantor Fitzgerald. "Although Will Smith was a dominant influence, responsibilities were shared - Keith and Rob were already very much involved in the investment process in areas such as asset selection and day-to-day management."

However, the trust's performance is of more concern as it has suffered in recent years in what has been a difficult period for the resources sector, with commodity markets in the fifth year of a bear market and the global economy maintaining its low growth trajectory. But the trust's share price return has beaten the Association of Investment Companies (AIC) Commodities & Natural Resources sector average over one, three and five years, and the Euromoney Global Mining Index over one year, albeit with negative returns.

It trades at a discount to net asset value (NAV) of -14.5 per cent, which is tighter than over the summer when it went out as wide as -26 per cent.

Over the trust's last financial year to 30 June its NAV total return was down 20.9 per cent and its share price was down 24.6 per cent, against a 14.5 per cent fall for its composite index, two-thirds Euromoney Global Mining Index (sterling adjusted) and one-third Credit Suisse High Yield Index (sterling adjusted]).

The trust paid out dividends per share of 5.6p, the same level as in its previous financial year, although this followed nine consecutive years of dividend growth. Last year's payout was covered 1.1 times by earnings, but the trust's board says a degree of caution should be taken given the number of factors influencing the uncertainty of income, including currency and interest rates.

The trust's managers have recently switched an element of the fixed-income portfolio out of the energy sector and into more consumer-focused UK bonds to "maintain diversity while awaiting a sustained recovery in the commodities sector".

They have also reweighted oil and gas exposure to prioritise companies that are less directly exposed to the oil price, including BWLPG (BWLPG:OSL), a liquefied petroleum gas shipping company benefiting from a glut of this on the US Gulf Coast.

City Natural Resources High Yield's market cap is only around £60m. This means the shares are less easy to trade, which can result in a wider bid-offer spread - the difference between the buying and selling price.

The bid-offer spread on City Natural Resources High Yield's shares is about 2 per cent. However, Mr Tan argues that this is not unusually wide for a fund of its size. BlackRock Commodities Income Investment Trust (BRCI), which has a market cap of £73.5m, has a bid-offer spread of about 1.8 per cent.

BlackRock World Mining Trust (BRWM), which has a considerably larger market cap of about £403m, has a bid-offer spread of 0.6 per cent. "This is the kind of spread people typically expect from an investment trust, but you have to consider its size," says Mr Tan.

City Natural Resources High Yield also has a relatively high level of debt, known as gearing, of 23 per cent, while some take the view that the underlying assets need to see significant recovery to ensure this trust has a viable future.

However, Mr Tan argues that "a lot of bad news is already baked into City Natural Resources High Yield's price".

In the commodity investment trust sector, Mick Gilligan, head of research at Killik & Co, says BlackRock World Mining looks more attractive as it is on a higher yield of 9.2 per cent against 6 per cent for City Natural Resources High Yield, and it has a lower ongoing charge of 1.4 per cent against 1.74 per cent for City Natural Resources High Yield.

If you want exposure to commodities, Mr Tan says you could consider having a small allocation to City Natural Resources High Yield, BlackRock World Mining and BlackRock Commodities Income, as they are very different and arguably complementary to each other. BlackRock World Mining is large-cap focused, and City Natural Resources High Yield is more of a small and mid-cap play. BlackRock Commodities Income, which we count among the IC Top 100 Funds, has a focus on income, and uses derivatives as well as investments to achieve this.

Mr Tan says: "It feels as though we are at the bottom of the commodities cycle, and emerging and developed markets will continue to demand resources. On the whole, supply is scarce and demand will only increase from here over the long term. Even if China is slowing down, as other countries such as India develop, they will pick up where China falls back."

Adrian Lowcock, head of investing at AXA Wealth, says: "At these levels resources look attractive, in particular oil, and commodities exposure would be suitable for patient long-term investors willing to accept some volatility and drip-feed money in."

Source: Morningstar,* CQS.

Performance of City Natural Resources vs rival trusts and key indices

Source: Morningstar as at 28 October 2015

Top 10 holdings as at 30 September 2015

Top 10 sectors as at 30 September 2015