Natural resources

Five reasons natural resources equities could fuel your portfolio

We see five compelling reasons for investors to revisit natural resources equities.

20. Juni 2024

7 minutes

Thematic Equity team

The fast view

We see five compelling reasons for investors to revisit natural resources equities.

  1. Energy transition
    The energy transition is driving structural demand for certain materials and products. At the same time, investment in new supply remains insufficient.
  2. Inflation
    Natural resources equities have historically tended to perform well in times of persistent inflation. We expect the relationship between inflation and natural resources equities to continue.
  3. Valuations
    We believe the structural growth drivers underpinning the next investment cycle are not yet reflected in the valuations of natural resources companies. Also, balance sheets are strong, making companies more resilient than in previous cycles.
  4. Performance
    In our view, the broad and diverse natural resources equity sector is the best way for investors to access commodities, and offers potential for active equity investors to generate alpha from security selection and dynamic subsector allocation. Over the past two decades, natural resources equities have outperformed commodities themselves.
  5. Diversification
    Natural resources equities have a low to negative alpha correlation with widely held equity styles such as ‘growth’ and ‘value’, as well as other real assets. Despite being a volatile equity sector, natural resources equities may improve the overall diversification of a broad portfolio.

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General risks. All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.

Specific risks. Geographic/Sector: Investments may be primarily concentrated in specific countries, geographical regions and/or industry sectors. This may mean that, in certain market conditions, the value of the portfolio may decrease whilst more broadly-invested portfolios might grow. Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income. Derivatives: The use of derivatives is not intended to increase the overall level of risk. However, the use of derivatives may still lead to large changes in value and includes the potential for large financial loss. A counterparty to a derivative transaction may fail to meet its obligations which may also lead to a financial loss. Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. insolvency), the owners of their equity rank last in terms of any financial payment from that company. Commodity-related investment: Commodity prices can be extremely volatile and losses may be made. Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.

Authored by

Thematic Equity team

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