Skip directly to Accessibility Notice

Eyeing Opportunity for Rebound in Resources

July 26, 2023

Read Time 2 MIN

Despite the recent lackluster performance of resource equities, it is important to note that historically, overall cumulative returns tend to rebound effectively during periods of high inflation.

Recent underperformance of resource equities amid uncharacteristically high inflation has been somewhat perplexing, yet is not entirely without precedence. In the 2000s’ bull market rally, for example (where inflation averaged just above 3%), there were five periods of greater than 10% decline lasting over a minimum of three months. Declines over these periods averaged around -15% and lasted for five months. Similar incidences also occurred in the 1970s when year-over-year inflation averaged just above 7%. U.S.-listed energy and mining stocks experienced (again) around five of these same types of declines, with an average loss of approximately -17% and -19%, respectively, over a length of around four months.

What is perhaps more important to consider here, though, is that, despite these brief periods of underperformance, cumulative returns of resource equities over both of these ten-year stretches landed north of +250% (or around +13% on an annualized basis).

We continue to monitor several key themes shaping the fundamental outlook for resource equities over both the near- and longer-term (An expanded PDF version of this commentary, including fund specific information can be downloaded here):

  • Exploration spending – The impact of capital expenditures reductions—particularly in sectors such as Oil & Gas and Base & Industrial Metals—appears to have taken hold. Though reported spending is on the rise in 2023, it is likely insufficient to offset any type of major supply deficiencies already baked-in as a result of multi-year underinvestment. We believe companies focused on capital discipline may benefit from stronger returns and cash flow generation in the months or years to come should fundamentals drive commodity prices even higher.
  • Supply security – China continues to maintain a firm grip over the extraction and processing of a vast array of critical metals and minerals. This fact has underpinned efforts by clean energy technology manufacturers and metals producers to seek alternate sources of supply or, where possible, onshore or “friend-shore” (i.e., to neighboring, allied countries) certain parts of their processing operations. Companies successful in executing on this strategy may stand to benefit should trade tensions increase in the near-term and/or should resource competition become more challenging in the future.
  • Shape and pace of the ongoing resources transition – Recent policy in the U.S. and Europe has been highly supportive of the development of renewable energy technologies. However, it is not clear yet exactly which industries or companies stand to benefit the most as a result. As well, the pace of renewable energy adoption and overall amount of capital investment required to meet most climate objectives, remains well below what is currently needed. From a portfolio positioning standpoint, we continue to seek out companies in the space that offer compelling, longer-term structural growth opportunity.

To receive more Natural Resources insights, sign up in our subscription center.

Important Disclosure

Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this blog.

This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.

Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.
666 Third Avenue | New York, NY 10017

1 - 3 of 3