Natural Resources Background & Investment Strategy April 26, 2011.
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Transcript of Natural Resources Background & Investment Strategy April 26, 2011.
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Natural ResourcesBackground & Investment Strategy
April 26, 2011
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What’s a Natural Resource?
Something you FIND…not MAKE.Something you NEED…not WANT.
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What do we use them for?
Natural resources are used to…• Build things
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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
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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
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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
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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
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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
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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
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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
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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
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Types of Natural ResourcesENERGY & POWER BASIC MATERIALS
Oil CopperNatural Gas Aluminum
Wind TimberSolar UraniumCoal
WaterFOOD & AGRICULTURE PRECIOUS METALS
Corn GoldSugar SilverCattle PlatinumWheat Palladium
Soybeans
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Types of Natural ResourcesENERGY & POWER BASIC MATERIALS
Oil CopperNatural Gas Aluminum
Wind TimberSolar UraniumCoal
WaterFOOD & AGRICULTURE PRECIOUS METALS
Corn GoldSugar SilverCattle PlatinumWheat Palladium
Soybeans
![Page 14: Natural Resources Background & Investment Strategy April 26, 2011.](https://reader035.fdocuments.in/reader035/viewer/2022062421/56649d2e5503460f94a05658/html5/thumbnails/14.jpg)
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Types of Natural ResourcesENERGY & POWER BASIC MATERIALS
Oil CopperNatural Gas Aluminum
Wind TimberSolar UraniumCoal
WaterFOOD & AGRICULTURE PRECIOUS METALS
Corn GoldSugar SilverCattle PlatinumWheat Palladium
Soybeans
![Page 15: Natural Resources Background & Investment Strategy April 26, 2011.](https://reader035.fdocuments.in/reader035/viewer/2022062421/56649d2e5503460f94a05658/html5/thumbnails/15.jpg)
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
![Page 16: Natural Resources Background & Investment Strategy April 26, 2011.](https://reader035.fdocuments.in/reader035/viewer/2022062421/56649d2e5503460f94a05658/html5/thumbnails/16.jpg)
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Types of Natural ResourcesENERGY & POWER BASIC MATERIALS
Oil CopperNatural Gas Aluminum
Wind TimberSolar UraniumCoal
WaterFOOD & AGRICULTURE PRECIOUS METALS
Corn GoldSugar SilverCattle PlatinumWheat Palladium
Soybeans
![Page 17: Natural Resources Background & Investment Strategy April 26, 2011.](https://reader035.fdocuments.in/reader035/viewer/2022062421/56649d2e5503460f94a05658/html5/thumbnails/17.jpg)
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Where are they?
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Power & Energy
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Basic Materials / Precious Metals
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Food & Agriculture
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Investment Characteristics
Natural resources generally…• act as an inflation
hedge
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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
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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)
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Investment Options
Commodities• Direct exposure to the
underlying resource
Investor
Natural Resource
Commodities vs. Equities
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Investment Options
Commodities• Direct exposure to the
underlying resource• Can be a physical
holding…
Commodities vs. Equities
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Investment Options
Commodities• Direct exposure to the
underlying resource• Can be a physical
holding…• or a derivative
investment
Commodities vs. Equities
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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…
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Derivative Investments
• Leveraged
Commodity Futures are…
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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
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Natural Resource Equities
Equities• Own shares of a
company
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Natural Resource Equities
Equities• Own shares of a
company• Can be directly owned
or through funds or ETFs
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Natural Resource Equities
Equities• Own shares of a
company• Can be directly owned
or through funds or ETFs
• Traded on standard exchanges
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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
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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
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In Conclusion
Natural Resources are…
…to be bought and SOLD, not bought and HELD
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In Conclusion
Natural resources don’t make money over time.
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In Conclusion
Natural Resources are…
…to be bought and SOLD, not bought and HELD…dangerously volatile
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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
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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
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In Conclusion
Natural Resources are…
…to be bought and SOLD, not bought and HELD…dangerously volatile…irrational
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In Conclusion
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In Conclusion
Natural Resource investments are…
…to be bought and SOLD, not bought and HELD…dangerously volatile…irrational…complicated
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In Conclusion
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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
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Natural ResourcesBackground & Investment Strategy
April 26, 2011