XIB Asset Management, the Canadian hedge fund that gained more than 200% in the first two years of the pandemic, is now betting that gold and uranium will outperform as interest rates decline.

The firm, founded by Sean McNulty and Peter Hatziioannou, expects policymakers to begin lowering borrowing costs soon.

“This creates a much more compelling outlook for global resources and is likely to drive a considerable improvement in Canadian capital markets activity,” the firm said in an investor letter seen by Bloomberg.

The XIB Fund posted a 0.8% loss in December, partly because of a reduced valuation on one of its private holdings, though it still returned 6.2% last year — rebounding from a loss of almost 15% in 2022.

“Gold and other commodity-driven equities have traditionally performed well during the next stages of the credit cycle,” McNulty said in an emailed statement, adding that there’s a looming supply shortfall in the uranium sector that’s garnering global attention.

The price of uranium, used to power nuclear reactors, has skyrocketed as last year’s coup in Niger disrupted shipments to European reactors, and miner Cameco Corp. reduced its production targets because of challenges at its Canadian operations. The US, meanwhile, is intensifying efforts to ramp up enrichment as it plans to bar enriched-uranium imports from Russia, its top foreign supplier.

With Canada home to hundreds of mining and resource companies, McNulty said he expects “an increase in corporate finance, M&A, and index events in these sectors,” and that Toronto-based XIB has “correspondingly added to our investing activities and event-driven exposure.”

XIB finished last year fully invested after adding new gold and uranium positions, according to the letter to investors. “Now, after what feels like two years of playing defense within the portfolio, we feel as though we are back to playing offense.”

The XIB Fund returned about 227% since its August 2019 inception, with the bulk of those returns coming in 2020 and 2021, according to the firm. The fund is relatively small — it had about C$160 million ($119 million) at the end of September, according to a document from Bank of Montreal — and pursues a flexible strategy that can include equity, debt and convertible securities alongside event-driven bets such as corporate reorganizations.