This fund returned 30% per annum for 3 years. Here are the ASX shares it's buying now.

These little known players could be gems, this fundie says.

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As we near the halfway point of 2024, many investors may be wondering if now is a good time to buy ASX shares. But where to start?

Checking where the experts are positioned is a good place.

The Perennial Natural Resources Trust has delivered impressive returns of 30% per annum over the last three years. It believes ASX resources stocks could offer compelling value in the future.

With stocks such as BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) often the first Australian resource companies that come to mind, some might forget there is a whole universe of commodity stocks on the ASX.

Here's a look at the ASX shares the fund is bullish on and whether they are suitable ASX shares to buy.

Undercovered commodity shares

Perennial's resources fund, headed up by Sam Berridge, has returned 32.3% in the year to May 31, with notable gains from commodities like gold, lithium, uranium, rare earths, and bauxite.

According to the Australian Financial Review, the fund has shown a keen interest in Brazilian Rare Earths Ltd (ASX: BRE).

"We've had solid runs from gold, lithium, uranium, rare earths, and bauxite at different points over the last four years", Berridge said.

He says one of these "big winners" included Brazilian Rare Earths. The company is Australian-based but has exploration sites for rare earths and critical minerals in Brazil and operates the Rocha da Rocha Critical Minerals project there.

This diversification away from traditional resources such as iron ore is critical to the fund's strategy, which involves buying ASX shares in the commodity space.

The commodity sector is becoming more diverse, with new boutique metals periodically rising to prominence due to some energy-related change in demand.

As such, players like Brazilian Rare Earths with exposure to critical minerals fit this bill well. Regarding the company's prospects, Berridge notes that it has "plenty more to give."

Should you buy these ASX shares?

The fund is also bullish on Capricorn Metals Ltd (ASX: CMM), an ASX-listed gold miner. Berridge said the ASX share has been a major contributor to its total 2024 return.

But he said that investors could capitalise on the AI theme in commodities through DUG Technology Ltd (ASX: DUG). Regarding the thesis to buy the ASX share, he said:

I think the most interesting direct exposure is DUG Technology. DUG makes most of its money by processing vast quantities of seismic data for oil and gas companies, but the compute it uses for this has ubiquitous applications.

Its key advantage is the use of immersion cooling, in which the hard drives sit in gently circulating baths of oil. This is more energy-efficient and cheaper than air-conditioning whole rooms full of computers. Elsewhere, the energy demands for AI and data centres require immense amounts of power. It must be cheap 24/7 power so, in the short term, that means US gas.

Leading brokers are also bullish on Capricorn Metals. Analysts at Bell Potter recently maintained a buy rating on the ASX share with a price target of $6.50 per share. According to my colleague James, the broker said the company deserved to be traded at a premium.

Foolish takeaway

According to the Perennial Resources Fund, investors looking to buy ASX shares may find potential in Capricorn Metals and Brazilian Rare Earths.

The Brazilian Rare Earths share price is trading 70% higher year to date, while shares in Capricorn Metals are down 5.3% over the same period. Dug Technology shares are up 34.7% since January this year.

As always, remember to conduct your own due diligence before investing.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Dug Technology. The Motley Fool Australia has recommended Dug Technology. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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