Jenna Dagenhart: Hello, and welcome to Asset TV. Joining us now to share his fourth quarter outlook and more is VanEck Portfolio Manager Shawn Reynolds. Shawn, can you give us an update on some of the major sectors in natural resources, as well as the response and the role in the global recovery?
Shawn Reynolds: Yeah. Well, thanks for having me, Jenna. Most of the areas, obviously, that we've invested in are very, very highly reliant on the economic recovery around the world, and it's clear that different industries have been responding at different levels. In the traditional energy space, it's a tough outlook. The demand destruction has been severe, and we don't look for a strong rebound until sometime until 2021. Actually, our real fear is that the underinvestment that's been going on in traditional energy, oil and gas, has been so substantial that as we get to the back half of 2021, we might have an imbalance the other way, where supply is not meeting a rebounding demand. So traditional energy though for the next period of time looks a little tough.
Shawn Reynolds: Alternative energy, on the other hand, has had a very good run of it. The great thing about alternative energy is that it's now becoming truly competitive with traditional energy. Think back over the last 10 or even 20 years, which we've been investors in that space for that time period, alternative energy has struggled economically to keep up with traditional energy. As we now move into some mandated stimulus programs around the world, as well as just technology developing, alternative energy is looking quite good.
Shawn Reynolds: On the mining side, as always, as it has been for the last 20 years, very tied to China. China has actually had a good recovery from the pandemic, and we see minerals and materials, such as iron ore and copper, have done quite well, and that's very supportive of the industry. But even more important with regards to the industry is that they are coming to an end, actually in the sweet spot, of a multi-year restructuring, where they've really gotten their balance sheets in shape, have gone after cost and returns. The returns on the capital they invest in all their projects are actually quite strong right now. They're generating a lot of free cash flow and they're giving that free cash flow back to shareholders in the form of dividends.
Shawn Reynolds: It's absolutely true in the gold world as well. Now, they're benefiting from both macro, massive stimulus around the world on the monetary and fiscal side and gold as a store of value. They're benefiting from that side but also the micro side. Again, the restructuring that they've been going through, just like the diversified miners, really getting their houses in order. And particularly, as we sit here today, we look back over the last, the third quarter, you've seen a lot of great results coming out of the gold mining industry in terms of generating free cash flow and raising their dividends.
Shawn Reynolds: Finally, the agricultural area has been quite mixed. Obviously, COVID had a pretty severe impact on restaurant demand for proteins, chicken, beef, and whatnot, but some of that was absorbed by retail, the grocery side. So that's kind of mixed, but obviously as we go through this recovery—and it's going to take time—you'll see that demand start to normalize as we get into 2021.
Jenna Dagenhart: And on that note, it probably feels like 2020 can't get any longer here, but 2021 is upon us. Shawn, what are you expecting in the new year and through the end of this year?
Shawn Reynolds: The biggest drivers are the stimulus programs that are going on around the world, and really, a lot of them, there's a lag. Now we've talked about how much money has come in has been really important to individuals who've gotten those stimulus checks and whatnot around the world. But a lot of it is still left to come, particularly on the fiscal side, and not just here in the United States. And so, we see that's continuing to roll through and to have benefits. And, hopefully, if we come to the eventual end of this pandemic, we come up with a vaccine, clearly, we're going to come back to a situation where demand is going to rebound across every aspect of the industry.
Shawn Reynolds: But again, what we invest in is the base, is the foundation, and once that comes back, we think that's going to be quite stimulative. But it's important to note is that this just isn't a cyclical call, and one of the things I think I pointed out a little bit earlier is that basically every industry that we invest in, at the start of 2020, was in really good shape on an industry and a company-by-company basis. That is, they spent a number of years... they've suffered from low prices and a struggling economy. But that's forced them into a restructuring and really looking at their business models and how they have to restructure and redefine their business models and how they're going to deliver and thrive in the world to come.
Shawn Reynolds: The disheartening part was many of the companies and industries were in great shape at the beginning of 2020 and then COVID kind of wiped it out. The great thing about third quarter, looking into the fourth quarter, you're starting to see a lot of those benefits coming through, as I've mentioned earlier, with dividends coming out of the mining sector.
Jenna Dagenhart: Well, Shawn, thank you so much for your time and your insights. Great to have you.
Shawn Reynolds: Great. Thanks for having me.
Jenna Dagenhart: And thank you for watching. That was VanEck Portfolio Manager Shawn Reynolds. I'm Jenna Dagenhart with Asset TV. To receive regular updates from VanEck's experts, please visit vaneck.com/subscribe.
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