How Natural Resources Fit into a 2023 Portfolio

Shawn Reynolds, Portfolio Manager for VanEck’s Global Resources Strategy and Environmental Sustainability Strategy, joined an episode of Orion Advisor Solutions’ Weighing Machine podcast to discuss how natural resources can enhance portfolio diversification, provide access to global growth and help hedge against inflation. Here are some highlights.

The Role of Natural Resource Stocks in a Portfolio

From traditional commodities like oil and gas to the ongoing transition to renewables, global resources represent the foundation of economic activity. In addition, over the next several decades, investments in clean technologies are anticipated to rise, as governments and corporations globally commit to long-term carbon-reduction initiatives. We believe that the resulting shift in commodity market supply and demand dynamics will pave the way for new winners to emerge. At the same time, the opportunity set among traditional resources is changing. As these trends continue, investing across the evolving natural resources opportunity set should continue to offer the same benefits it has for decades: enhanced portfolio diversification, access to global growth and a hedge against inflation [13:36].

How VanEck Defines Natural Resources

VanEck defines natural resources as traditional commodities like oil and gas, base and precious metals, as well as technologies and materials supporting the multi-decade transition to renewables. This broad scope offers a far-ranging opportunity set that extends well beyond traditional commodity markets. For example, agriculture contributes nearly as much to global emissions as electricity and heat production. Accordingly, natural resources covers the broad array of emerging agri-food related markets—including, for example, precision agriculture and alternative proteins—as companies seek innovative solutions for accessing, producing, distributing, consuming, and optimizing the use of goods and services. VanEck classifies natural resources into the following categories: renewables & alternatives, base & industrial metals, gold & precious metals, oil & gas, agriculture, paper & forest, and industrials & utilities (14:42).

Natural Resources Are a Great Inflation Hedge

Historically, natural resources and commodity investments have been an excellent way to gain access to global growth, diversify broader stock and fixed income portfolios and hedge against inflation. Investors last faced inflation risk in the early-to-mid 2000s with the most notable bout of inflation occurring in the 1970s. Historically, global resource and commodities have acted as a hedge against inflation, outperforming U.S. stocks and bonds. Even in periods of modest inflation (2-6%) global resources and commodities have outperformed U.S. stocks (16:03).

Other highlights include:

• What drew Shawn to the energy industry. (03:02)
• How natural resource stocks will fit into portfolios in 2023. (12:39)
• Recommendations for a natural resource allocation. (18:03)
• How recession can impact natural resource stocks. (21:38)
• Do natural resource stocks replace or complement other real assets? (23:51)
• Why investors should consider an ETF for their natural resource exposure. (25:11)
• Shawn’s favorite investment. (32:00)

Listen to the full podcast here: Orion's The Weighing Machine: The Unique Benefits of Investing in Natural Resources and Commodities.

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