What the market is getting wrong
Macro worries have created a useful entry point into natural resources equities. This part of the stock market is often misunderstood, presenting value opportunities for selective investors.
After a strong run for the US stock market, many global equity portfolios are concentrated by sector and style, heightening vulnerability to market‑regime shifts and inflationary environments. A dedicated allocation to natural resources equities can improve portfolio resilience by adding an exposure with differentiated return drivers and long‑term tailwinds from AI‑driven power demand and electrification.
Key takeaways
- After a strong run for the US stock market, many global equity portfolios are concentrated by sector and style.
- A dedicated allocation to natural resources equities can improve portfolio resilience, adding exposure to an underrepresented sector that can benefit from inflation, physical investment cycles and changing stock-market leadership.
- Natural resources equities can mitigate vulnerability to equity market-regime shifts. The asset class has distinct performance drivers that may complement existing equity allocations.
- Beyond inflation protection, natural resources equities provide exposure to structural growth themes such as electrification and AI power demand growth.
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.
