Staying the Course: Navigating a Volatile Q2 in Commodities

Quarterly insights from Global Resources Portfolio Manager Shawn Reynolds, featuring his unique views on natural resources and commodities.

Q2 2025 Commodities & Resource Equities: Resilience Through Uncertainty

Commodities and resource equities remained resilient in Q2 2025, navigating a complex macroeconomic and geopolitical backdrop. Oil markets experienced pronounced volatility, driven by evolving OPEC+ supply dynamics and heightened geopolitical risk. Gold outperformed, reaffirming its status as a safe-haven asset amid global uncertainty. Industrial metals, however, came under pressure due to softer demand trends—particularly from China’s industrial sector.

Resource equities delivered a mixed performance, though the broader sector continued to reflect key investment strengths: robust operational execution, disciplined capital allocation, and an ongoing commitment to shareholder returns. While investor sentiment remained cautious—shaped by persistent macro and policy uncertainty—the underlying fundamentals and long-term value drivers in the space remain intact.

Sector Performance Recap

• Oil & Gas – Oil markets experienced significant volatility in Q2. Crude prices fell to four-year lows in early May but rebounded sharply following the strikes against Iran’s nuclear infrastructure. These gains were short-lived, however, as the subsequent de-escalation redirected market focus to weakening global demand and OPEC+’s gradual rollback of voluntary production cuts. U.S. shale producers maintained a conservative approach to capital expenditures amid margin compression and elevated input costs driven by new tariffs. In contrast, U.S. refiners outperformed thanks to robust shareholder return strategies and firm capital discipline.
• Base & Industrial Metals – Base metal prices delivered mixed results. Copper traded near multi-month highs, supported by ongoing supply constraints and relatively stable demand from China. U.S. exchange inventories fell to their lowest levels in nearly two-year, driven by pre-tariff stockpiling and persistent mining disruptions. Supply remains tight due to project delays at major developments, while Chinese smelters face margin compression from historically low treatment and refining charges. In the iron ore market, resilient steel production and declining Chinese port inventories offered bullish signals, but broader macroeconomic concerns—including trade and property sector instability—kept prices under pressure.
• Gold & Precious Metals – Gold prices remained robust, briefly dipping below $3,000/oz in April amid a risk-on rally before swiftly recovering. Gold equities generally outperformed the metal, supported by stable all-in sustaining costs (AISC) and strong free cash flow generation. Producers capitalized on favorable price conditions to strengthen balance sheets—reduce debt, enhance dividend payouts, and pursue strategic M&A activity. Recent consolidation trends have created opportunities for operational synergies and reserve replacement.
• Renewables & Alternatives – The renewable energy sector continued to demonstrate modest growth in Q2 2025, though emerging policy and macroeconomic headwinds have raised new uncertainties. China remained the global leader, installing a record 60 GW of solar capacity, while the U.S. added 10 GW of battery storage in Q1 alone. However, proposed U.S. federal policy changes—such as potential reductions to production and investment tax credits, and the introduction of excise taxes on solar and wind—pose risks to project costs and development pipelines. Elevated interest rates and capital costs continue to challenge equipment manufacturers and independent power producers.
• Agriculture/Paper & Forest Products – The agricultural sector presented a mixed outlook. Grain markets remained under pressure, with corn and soybean prices falling below breakeven levels for many U.S. farmers, despite generally favorable growing conditions. Margins continued to be compressed by rising input costs and ongoing trade policy uncertainty. Fertilizer prices surged, driven by supply disruption in the Middle East. Conversely, protein markets showed relative strength as tight supplies of cattle, hogs and chickens supported higher prices across beef, pork and poultry. Nonetheless, packaged food producers faced pressure from elevated production costs, tariff-induced input inflation, and subdued consumer demand.

Portfolio Performance: Drivers and Detractors

The Global Resources Fund (Class A; excluding fees and expenses, the “Fund”) returned 5.47% in the second quarter of 2025, outperforming its benchmark, the S&P Global Natural Resources Index (the “Index”), which returned 3.26%. Year-to-date, the Fund has returned 13.34%, also ahead of the Index’s 10.42% return over the same period.

On an absolute basis, the top contributors to Fund performance were positions in Base & Industrial Metals—notably copper producers and diversified miners—as well as Gold & Precious Metals producers. Fertilizer companies within Agriculture also added to returns. Detractors included Oil & Gas and Paper & Forest positions, with integrated oil and gas producers accounting for the largest declines.

Relative to the Index, the Fund benefited from strong security selection within Base & Industrial Metals, an underweight allocation and effective selection in Oil & Gas, and an overweight in Renewables & Alternatives. However, performance was negatively impacted by selection and interaction effects in Agriculture.

Average Annual Total Returns^* (%) Quarter End as of 06/30/25

^* Returns less than one year are not annualized.

The table presents past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect temporary contractual fee waivers and/or expense reimbursements. Had the Fund incurred all expenses and fees, investment returns would have been reduced. Expenses: Class A: Gross 1.49% and Net 1.38%. Expenses are capped contractually through 05/01/26 at 1.38% for Class A. Investment returns and Fund share values will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV.

Top Contributors/Detractors

Contributors

Source: VanEck, FactSet. Data as of June 30, 2025.

Detractors

Source: VanEck, FactSet. Data as of June 30, 2025.

Notable Portfolio Changes

During the quarter, the team added to and exited some of its Base & Industrial Metals exposure, while also exiting positions in Agriculture.

Adds

Source: VanEck, FactSet. Data as of June 30, 2025. Not a recommendation to buy or sell any securities referenced herein. Estimated contributions are sourced from FactSet and are not intended as a predictor or guarantee of future results and are for illustrative purposes only. Portfolio compositions are subject to change at any time.

Exits

Source: VanEck, FactSet. Data as of June 30, 2025. Not a recommendation to buy or sell any securities referenced herein. Estimated contributions are sourced from FactSet and are not intended as a predictor or guarantee of future results and are for illustrative purposes only. Portfolio compositions are subject to change at any time.

From Policy Shifts to Price Signals: Key Market Drivers and Sector Impacts for the Second Half

The U.S. dollar is expected to remain under pressure, with downside driven by renewed tariff threats and growing concerns over fiscal sustainability. The passage of Trump’s "Big Beautiful Bill" could further widen budget deficits. Historically, a weaker dollar has supported higher commodity prices—a dynamic we expect to persist into the second half of 2025.

Geopolitical risk remains elevated, particularly in the Middle East. Although a ceasefire with Iran is currently in place, its long-term viability is uncertain. We believe a 5%–10% risk premium is currently warranted for oil prices until a lasting resolution is achieved or market fundamentals regain control. Importantly, the distinction between oil at $60–$65 versus $55 is critical for high-cost producers and exploration-intensive firms. The current environment favors well-capitalized oil and gas companies with low break-even points, healthy balance sheets, robust profitability, and attractive shareholder return profiles via dividends and buybacks.

In the metals space, companies are benefiting from improved operational efficiency and resilient commodity prices. Meanwhile, volatility continues to plague the renewables sector as clarity around tax credits, other fiscal incentives and enforcement rules remain unclear. In agriculture, low crop prices should bolster the margins of protein players who will benefit from subdued animal feed costs. Conversely, subdued crop prices present challenges for fertilizers and agrochemical producers. Finally, the macroeconomic environment remains unfavorable for paper and forest products companies, where demand softness and cost pressures continue to weigh on performance.