Post on 19-Dec-2015
Natural ResourcesBackground & Investment Strategy
April 26, 2011
2
What’s a Natural Resource?
Something you FIND…not MAKE.Something you NEED…not WANT.
3
What do we use them for?
Natural resources are used to…• Build things
4
What do we use them for?
Natural resources are used to…• Build things• Provide energy & power
• Act as a currency• Make friends• Make enemies• Create policy
• Make money• Bet on growth• Diversify an investment
portfolio
5
What do we use them for?
Natural resources are used to…• Build things• Provide energy & power
• Act as a currency• Make friends• Make enemies• Create policy
• Make money• Bet on growth• Diversify an investment
portfolio
6
What do we use them for?
Natural resources are used to…• Build things• Provide energy & power
• Act as a currency• Make friends• Make enemies• Create policy
• Make money• Bet on growth• Diversify an investment
portfolio
7
What do we use them for?
Natural resources are used to…• Build things• Provide energy & power
• Act as a currency• Make friends• Make enemies• Create policy
• Make money• Bet on growth• Diversify an investment
portfolio
8
What do we use them for?
Natural resources are used to…• Build things• Provide energy & power
• Act as a currency• Make friends• Make enemies• Create policy
• Make money• Bet on growth• Diversify an investment
portfolio
9
What do we use them for?
Natural resources are used to…• Build things• Provide energy & power
• Act as a currency• Make friends• Make enemies• Create policy
• Make money• Bet on growth• Diversify an investment
portfolio
10
What do we use them for?
Natural resources are used to…• Build things• Provide energy & power
• Act as a currency• Make friends• Make enemies• Create policy
• Make money• Bet on growth• Diversify an investment
portfolio
11
What do we use them for?
Natural resources are used to…• Build things• Provide energy & power
• Act as a currency• Make friends• Make enemies• Create policy
• Make money• Bet on growth• Diversify an investment
portfolio
Global Equities
40%
Fixed Income20%
Absolute Return
15%
Real Assets15%
Private Equity10%
Asset Allocation
12
Types of Natural ResourcesENERGY & POWER BASIC MATERIALS
Oil CopperNatural Gas Aluminum
Wind TimberSolar UraniumCoal
WaterFOOD & AGRICULTURE PRECIOUS METALS
Corn GoldSugar SilverCattle PlatinumWheat Palladium
Soybeans
13
Types of Natural ResourcesENERGY & POWER BASIC MATERIALS
Oil CopperNatural Gas Aluminum
Wind TimberSolar UraniumCoal
WaterFOOD & AGRICULTURE PRECIOUS METALS
Corn GoldSugar SilverCattle PlatinumWheat Palladium
Soybeans
14
Types of Natural ResourcesENERGY & POWER BASIC MATERIALS
Oil CopperNatural Gas Aluminum
Wind TimberSolar UraniumCoal
WaterFOOD & AGRICULTURE PRECIOUS METALS
Corn GoldSugar SilverCattle PlatinumWheat Palladium
Soybeans
15
Types of Natural ResourcesENERGY & POWER BASIC MATERIALS
Oil CopperNatural Gas Aluminum
Wind TimberSolar UraniumCoal
WaterFOOD & AGRICULTURE PRECIOUS METALS
Corn GoldSugar SilverCattle PlatinumWheat Palladium
Soybeans
16
Types of Natural ResourcesENERGY & POWER BASIC MATERIALS
Oil CopperNatural Gas Aluminum
Wind TimberSolar UraniumCoal
WaterFOOD & AGRICULTURE PRECIOUS METALS
Corn GoldSugar SilverCattle PlatinumWheat Palladium
Soybeans
17
Where are they?
18
Power & Energy
19
Basic Materials / Precious Metals
20
Food & Agriculture
21
Investment Characteristics
Natural resources generally…• act as an inflation
hedge
22
Investment Characteristics
Natural resources generally…• act as an inflation
hedge• act as a portfolio
diversifier• are highly volatile
SPGNRE EEM EWAC MXEA SPX LUASTR0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Correlation: 2002 - 2011
23
Investment Characteristics
Natural resources generally…• act as an inflation
hedge• act as a portfolio
diversifier• are highly volatile
0
10
20
30
40
50
60
70
80Volatility: 2002 - 2011
Fixed Income (10-yr AVG: 4.20)
Stock Market (10-yr AVG: 18.76)
Commodities (10-yr AVG:25.20)
24
Investment Options
Commodities• Direct exposure to the
underlying resource
Investor
Natural Resource
Commodities vs. Equities
25
Investment Options
Commodities• Direct exposure to the
underlying resource• Can be a physical
holding…
Commodities vs. Equities
26
Investment Options
Commodities• Direct exposure to the
underlying resource• Can be a physical
holding…• or a derivative
investment
Commodities vs. Equities
27
Derivative Investments
• Regulated by the CFTC
• Traded on multiple exchanges
• Agreements to buy/sell pre-determined quantities of a commodity at a date specific in the future
Commodity Futures are…
28
Derivative Investments
• Leveraged
Commodity Futures are…
29
Commodity Futures
Benefits• Unfettered exposure
to natural resources• Leverage through
futures• Financial asset• No management
Drawbacks• Highly volatile• Complicated• Leverage through
futures• Financial asset• No management
30
Natural Resource Equities
Equities• Own shares of a
company
31
Natural Resource Equities
Equities• Own shares of a
company• Can be directly owned
or through funds or ETFs
32
Natural Resource Equities
Equities• Own shares of a
company• Can be directly owned
or through funds or ETFs
• Traded on standard exchanges
33
Natural Resource Equities
Benefits• Easily traded• Less volatile than
underlying commodities
• More diversified• Not levered• Actively managed
Drawbacks• Indirect exposure• Higher market beta• Not levered• Dependent upon
management• Can go out of business
34
In Summary
Natural Resources are…
…found and not made…needed vs. wanted (price inelastic) …a bet on growth…uncorrelated to financial markets…used to diversify a portfolio…available for investors in multiple forms
35
In Conclusion
Natural Resources are…
…to be bought and SOLD, not bought and HELD
36
In Conclusion
Natural resources don’t make money over time.
37
In Conclusion
Natural Resources are…
…to be bought and SOLD, not bought and HELD…dangerously volatile
38
In Conclusion
04/25/0702/08/0711/22/0609/11/0606/27/0604/12/0601/27/0611/10/0508/29/0506/15/0504/01/0501/14/050
5
10
15
20
25
30
35Daily Volatility: SPGSCI & SPX
SPX: AVG 12.2
39
In Conclusion
04/25/0702/08/0711/22/0609/11/0606/27/0604/12/0601/27/0611/10/0508/29/0506/15/0504/01/0501/14/050
5
10
15
20
25
30
35Daily Volatility: SPGSCI & SPX
SPX: AVG 12.2
SPGSCI: AVG 23.7
40
In Conclusion
Natural Resources are…
…to be bought and SOLD, not bought and HELD…dangerously volatile…irrational
41
In Conclusion
42
In Conclusion
Natural Resource investments are…
…to be bought and SOLD, not bought and HELD…dangerously volatile…irrational…complicated
43
In Conclusion
44
In Conclusion
Natural Resource investments are…
…to be bought and SOLD, not bought and HELD…dangerously volatile…irrational…complicated…a key component to a diversified portfolio
Natural ResourcesBackground & Investment Strategy
April 26, 2011