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Global Resources Q3 Review: Macro Headwinds and Outlook

November 16, 2023

Watch Time 12:22 MIN

Portfolio Manager Shawn Reynolds and Deputy Portfolio Manager Charlie Cameron discuss global resources, including macro headwinds, commodities’ performance, and why we have a positive outlook about the space moving forward.

Natural Resources Update and Outlook, Q3 2023

Hi, it's Shawn Reynolds here along with my colleague Charlie Cameron, and we're here today to talk about an update and outlook on the global natural resources sector. First, we're going to give you a review of the third quarter results from the VanEck’s Global Natural Resources Fund. Second, we're going to talk about some of the macro headwinds that have faced the industry through the third quarter and how we really think about the outlook for the next quarter next year. And then finally, we're going to break down, how that outlook is really going to influence some of the individual companies and industries that make up the global natural resources space.

During the third quarter of 2023, the VanEck Global Natural Resources Fund delivered positive performance of a little over 3%. That's a strong turnaround from the first half of the year when the fund was down 4.8%. It was nice to see that positive performance and to claw back some of the negative returns during the first half. Nevertheless, this still leaves the fund nearly 2.7% behind the S&P Global Natural Resources Index, which is our benchmark.

As I mentioned the VanEck Global Natural Resources Fund was up a little over 3% for the third quarter, but it continues to underperform the benchmark a little under 1%. What was the driver to that performance? It really comes down to energy transition and green metals. So anything to do with the transitioning, transforming energy market out there was really negatively hit during the quarter and for the whole year for that matter. It really was astounding. It felt like a little like these were meme stocks in that they were just indiscriminately sold. There were certainly some valid headwinds with regards to interest rates and continued high interest rates and higher for longer. There are also some concerns about growth. Also some concerns about individual companies hitting the right milestones. But nevertheless, the long-term potential of this space was completely ignored, and a lot of these stocks were down probably the worst quarter in their history. However, as we look forward, we definitely think this is an important part of our portfolio and your portfolio.

We think the energy transition and green metals is going to be something that's here to stay, not go away. It was disappointing because we think it is an important part and it will continue to be a meaningful and significant part of the portfolio as long as we continue to see the fundamentals that we believe stack up in favor of that space. We did make some adjustments to the portfolio, but it was definitely this kind of blind disregard of just throwing everything out. And we think we've probably seen the bottom with regards to that. And in fact, Sunnova, which just reported some positive third quarter results and a positive outlook. And in fact, the stock as I walked in here to speak to you all, it was up double digit for the day. So it seems like we were kind of bouncing off the bottom.

Only partially offsetting this negative performance of energy transition and green metal stocks was a really strong performance from the energy space. And this is across the energy space, be it integrated oils, oil and gas, expiration and production companies, oil field services, refiners. We really saw it everywhere. This was particularly satisfying because it's something that we have been pursuing some time when we really think about the number of [oilfield servicers] that we've pursued in that space. Really one of our strongest beliefs was that the oil flow services sector would start to benefit from a better than expected results here in North America, but also from a renewed activity strength internationally and offshore. And that's certainly something that we've seen through the latter part of this quarter and into the fourth quarter.

We also had a strong view with regards to diesel and diesel refining, and we've started to see that play out with regards to the refiners, as well as the integrated oil companies. Our energy exposure, while not anywhere close to our all-time high, it is the highest that we've had in a number of years.

So to summarize, we had positive performance for the quarter, but slightly behind the benchmark. This is more than wholly due to the energy transition green metals exposure. We're going to stick with that exposure, because we believe in it longer term. But we think those macro factors and some of the really unsubstantiated concerns with regards to that space is really bottom out, starting to go away. And as we look forward, we think that both old and new resources look very, very favorable.

The macro headwinds, as I said, are beginning to dissipate. And while the companies that we hold continue down the path of doing what they can do best to create value with the tools that they control, that's really how we look at the portfolio is performing now and for the future. And while we think that we all get plenty of these macro views and you probably might be tired of hearing about all the macro outlooks and concerns that we have as we hear about every single day, we think it would still be important for us to give to you how we are thinking regarding these macro inputs, and how that influences the portfolio.

And with those details of that outlook, I would like to hand it off to Charlie Cameron, my colleague.


Thanks, Shawn. As Shawn said, the fund was up 3% for the quarter, but there were a fair amount of headwinds. The dollar was up 3% in the quarter. And bond yields. And when I say bond yields, I mean the back end. Ten-year yields were up 70 basis points for the quarter. Wasn't the Fed, it was more the back end of the curve. And that really hurt the long duration assets. And that would be the green metals and alternative energy because long duration bond prices went higher.

So that was a drag, the dollar was a drag, and then China. I mean, when China came out of COVID, everybody expected the pickup in their economy. They had a lot of fiscal and monetary stimulus, but because of the malaise in the real estate sector, China really hasn't picked up yet. It looks like they're still doing more. Matter of fact, this week, they increased their deficit spending, and we think China will be much better going forward next year.

So with that, again, those are the headwinds we faced this quarter. I think interest rates are done in terms of Fed raising rates. The dollar looks like it's kind of on its peak now. So these headwinds could turn to tailwinds into the fourth quarter, but probably more likely next year. And with that, I'll kick it back to Shawn.

Thanks, Charlie. And as you can see, you know, we believe that these macroheadwinds that were really gusting through the third quarter and really for the first three quarters of the year, really expect them to ease quite a bit into the future.

As far as, commodities go, we have a chart on that. And we really look at this and call this the four C's of commodities. That's crude, copper, corn and cobalt.

And you can see in most cases, copper, corn, and cobalt, prices are down. We really do think that a lot of the macro headwinds that Charlie just talked about are going to turn around and start to be tailwinds for those commodities. And at a minimum, we would expect the resiliency of these commodities to show up in terms of they're not going to go down much further.

Crude has obviously been pushed around quite a bit by geopolitics, but we continue to think that it should be fairly strong as well.

As we really start to think about the rest of the sectors and the outlook for the sectors, we really believe that just about any metric that is out there is going to be very, very supportive of the different sectors. And as we have another slide here that really looks at the traditional resource sectors, both energy and materials.

And this slide is fairly busy, but if we look in the upper left-hand corner, we can see a valuation metric, which is enterprise value to EBITDA. And you can see a 15-year bar in terms of distribution of these different valuations across different sectors. We can see in the middle an average valuation, and where we stand today is an orange dot. And really, as you look at that valuation, you can see that energy and materials are cheaper than any other sector in the market, as cheap as they've been in the last 15 years and much, much cheaper than their average rate. Why are they that cheap?

We can try to dissect that. Sometimes things are cheap for a reason, but if we look in the upper right-hand corner, we can say it's certainly not due to their balance sheets. Now that was an issue maybe five years ago, but that has really disappeared. And the balance sheets are really, really strong.

How has it been created and then been reflected? It’s being created by a very strong free cash flow yield that's in the lower left of the chart. And again, you can see just how it compares to the rest of the market. And what's happened after they've generated that free cash flow, paid down the debt, they've now started to deliver that in terms of dividend yields. You also see it in terms of buybacks.

But if you look at that lower right-hand corner, that's dividend yields of the two sectors. And again, it just stacks up. They're the two of the strongest in the market. So we see that, you know, we call this the any way you slice it slide and any way you want to look at, you know, be it operational metrics, financial metrics, valuation metrics, these sectors are starting to look very, very good.

And as we go down the line, we think about the oil sector and the oil industry. It continues to be in very, very good shape. It may not be due to all the same things that we saw, last quarter at the beginning of the year, but crude seems very, very strong. And it is geopolitically manipulated for sure, but we do seem to have a put at $80. We even had our own government, U.S. government, saying that at $78, $79, they're going to start buying crude again. So that sounds really, really positive. Plus, these companies have been working for quite some time to get their balance sheets in shape and their financial metrics in shape. And that's benefiting you, the shareholder.

When it comes to the diversified metal space, which includes green metals, we think we are definitely headed into a significant shortage from everything from copper to lithium to graphite, lead, rare earths, just about everything is going to be short as we move forward and that most of the companies that we look at are really well positioned to take advantage of that.

On the Ag space, which you really haven't touched on here, they've had a very good year and have a very good outlook. The companies in the space, span from farm machinery to ag processors to fertilizer companies, protein providers across the board. They are continuing to innovate and provide differential value to all of its customers and to you, the shareholders.

As far as gold companies go, you know, simply put, this is kind of surprising to us. But, you know, you are you are percentage points, a few percentage points away from hitting all time record high gold prices. Equities are slowly getting caught up with that. The gold companies themselves are working very hard to control cost and continue to create value. And we continue to see it as a very strong place to have a position in with regards to a store of value and certainly protection against inflation.

And as we mentioned, the energy transition space continues to be tough, but we think we've reached the bottom. As we mentioned with Sunnova, the energy transition definitely is transitioning. We hope we've seen an inflection. And we think we have to be patient here as the rest of the market starts to recognize both the inevitability of the growth potential of this space and the delivery of disciplined results by the key players in industry. And hopefully those are the ones that we own in the portfolio. So as we look forward we feel very positive about the outlook we look at third quarter as is a hopefully you know as we said we clawed back some performance get positive performance we think it's a sign of things to come and we really believe in the underlying value that we see in the natural resources space.

Thanks very much.


S&P Global Natural Resources Index (SPGNRUP) includes the largest publicly traded companies in natural resources and commodities businesses that meet specific investability requirements, offering investors diversified and investable equity exposure across three primary commodity-related sectors: agribusiness, energy, and metals & mining which tracks the global natural resources and commodities businesses.

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.

Average Annual Total Returns* (%)
Quarter end as of 09/30/23
  1 MO 3 MO YTD 1 YR 3 YR 5 YR 10 YR
VanEck Global Resources Fund: Class A
At Net Asset Value -1.80 2.39 -3.25 5.47 15.11 4.53 -0.98
At Maximum 5.75% Sales Charge -7.44 -3.50 -8.81 -0.59 12.86 3.30 -1.57
S&P Global Natural Resources Index -0.35 3.70 0.47 17.78 19.16 6.38 5.25
S&P North American Natural Resources Sector Index 0.09 8.06 4.90 24.05 32.78 7.49 3.50

*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 fees1, investment returns would have been reduced. Expenses: Class A: Gross 1.47% and Net 1.38%. Expenses are capped contractually through 05/01/24 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.

Please visit for fund performance as of the most recent month end.

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