Our Approach to Global Resources: Question & Answer
July 06, 2022
Read Time 6 MIN
From traditional commodities like oil and gas to the ongoing transition to renewables, global resources represent the foundation of economic activity. As governments and private sectors across the world commit to long-term carbon-reduction policies, cumulative investments in clean technologies are expected to soar. In our view, 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. For example, the shift towards clean technologies is creating investment opportunities in areas from battery metals and minerals to renewable diesel and hydrogen, as traditional resource companies race to keep up with sustainability trends. Commodities may also be in the midst of a new super cycle, driven by structural imbalances in supply and demand. To us, this super cycle appears to be in its early innings, while the transition to renewables and clean technologies is likely to unfold over multiple decades. As these trends continue, an actively managed portfolio investing across the evolving global resource equity opportunity set should also continue to offer the same benefits it has for decades: enhanced portfolio diversification, access to global growth and a hedge against inflation. This blog intends to answer frequently asked questions about investing in global resources, and more specifically, the VanEck Global Resources Strategy.
- What are “global resources”?
- How does VanEck approach investing in global resources?
- How does VanEck source and evaluate investment ideas?
- What are the benefits of an actively managed approach to global resources?
- What role do global resource equities play in a broader portfolio?
- What are the benefits of global resource equities versus investing directly in commodities?
- How can investors buy VanEck Mutual Funds?
What are “global resources”?
Global resources include traditional commodities like oil and gas, base and precious metals, as well as technologies and materials supporting the multi-decade transition to renewables. This expansive boundary offers a far-ranging opportunity set stretching well beyond traditional commodity markets. For example, the shift towards renewable energy is creating soaring demand for a new set of commodities. Minerals like lithium, graphite and manganese are essential components of clean technologies. In addition, sustainability trends requiring a massive overhaul of existing infrastructure have created commoditized markets in the modernization and digitization of buildings and factories across the global supply chain.
As well, while the focus on environmental sustainability tends to be primarily on power and transportation, this is likely too narrow in scope. Agriculture contributes nearly as much to global emissions as electricity and heat production. Accordingly, global 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’s strategy classifies global resources into the following categories: renewables & alternatives, base & industrial metals, gold & precious metals, oil & gas, agriculture, paper & forest, and industrials & utilities.
How does VanEck approach investing in global resources?
The VanEck Global Resources Strategy emphasizes bottom-up fundamental research to invest in the stocks of companies with unique competitive advantages associated with traditional commodities and those leading the development of emerging resource applications and technologies within the space. The strategy is actively managed and focused on opportunities across a broad range of global resource equity sectors, with increasing relevance in areas like renewable and alternative energy.
In addition to bottom-up fundamental research, the strategy includes top-down, macroeconomic considerations to identify opportunities and manage risk. These include factors such as GDP trends, central bank policy, and inflation risks, as well as industry themes like consumption dynamics, technological advances/substitution threats, and regulatory policy developments.
How does VanEck source and evaluate investment ideas?
With a 25+ year track record, VanEck’s Global Resources Strategy is supported by an investment team with former geologists and engineers as well as analysts with deep sector experience. The investment team’s operational experience and technical expertise allows deeper appreciation of risks and opportunities across the global resources spectrum.
We believe a seasoned investment team combining extensive hands-on technical expertise and deep experience in economic and commodity cycles is best positioned to capture returns from the rapidly changing world of diversified resource equities. The portfolio is powered by our investment team’s quest for identifying companies with unique competitive advantages via technology, asset base, and management quality, as well as companies that can capitalize on new demand and defend against traditional commodity price volatility.
What are the benefits of an actively managed approach to global resources?
Selectivity and flexibility are essential components of investing in global resource equities. Since its launch in 1994, the Global Resources Strategy’s active management has allowed it to remain forward-looking and adapt to changing economic trends. In addition to its exposure to traditional resources segments that are poised to respond strongly to global economic growth and inflationary pressures, the strategy is inclusive of the developments taking place at the forefront of burgeoning sustainability initiatives. For example, with demand expected to trend higher in the years to come, the minerals used in clean technologies represent a compelling investment opportunity for long-term investors. However, while key input minerals for clean energy technologies are already seeing dramatic price increases, not all clean technologies are dependent on the same minerals (e.g., copper plays an essential role in the production of electric vehicles and battery storage but is not used in the geothermal space). Investing in global resources requires a holistic view of the commodities market and sustainability trends, and the flexibility of an actively managed approach to appropriately capitalize on opportunities and manage risk.
What role do global resource equities play in a broader portfolio?
Historically, global 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.
What are the benefits of global resource equities versus investing directly in commodities?
Commodities move independently and can be highly volatile. Price is the primary driver of performance for strategies that invest directly in commodities. When the price of gold or oil or gas goes up or down, the value of direct commodity investments goes up and down accordingly.
The VanEck Global Resources Strategy provides exposure to commodities through equity investments in commodity-related companies. As a result, idiosyncratic return drivers such as operational improvements or new technologies may benefit resource equities independent of commodity price directionality. In addition, the strategy provides exposure to companies that are well positioned to benefit from the transition to renewables.
How can investors buy VanEck Mutual Funds?
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included herein.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. 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.
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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.
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