Natural Resources for Today and Tomorrow

Commodity investing can play several important roles in a portfolio. The asset class has provided a hedge against inflation, strong diversification characteristics, and participation in global growth trends.

In moderate inflationary periods (2%-6%), commodities outperformed U.S. stocks and U.S. bonds.

Source: VanEck , FactSet , Bloomberg. Data as of February 2024. Past performance is no indication of future results.

But investing in commodities can be complex. Physical exposure to many energy products, metals, and agricultural goods is often not practical and investing in commodities derivatives such as futures contracts can be complicated and time-intensive to manage. Many investors look to resources companies to gain exposure to commodities with the benefit of liquidity and ease of access.

The challenge here is the depth of investment possibilities within the equity markets. Energy companies range from large integrated oil & gas companies to exploratory drilling companies. Materials companies are no less differentiated from companies that produce industrial metals like copper to those locating and producing gold, silver, and/or platinum.

We believe a well-diversified strategy built to take advantage of today’s ever-changing landscape can serve an investor well through market cycles.

Global Natural Resources Exposure

VanEck Natural Resources ETF (HAP) offers a well-rounded, diversified, take on natural resources. It’s global focus avoid concentration is North American companies and missed opportunities from the many leading companies outside of the region.

Additionally, many strategies focus on the old guard: energy, metals, and perhaps agriculture. HAP provides investors access to not only those traditional segments, but also areas of innovation within the asset class, such as renewable energy.

The following chart shows the sub-theme’s exposure in the asset class:

Sub Theme Weights

Source: FactSet. Data as of 03/15/2024.

This broadened scope should allow HAP to participate in what we believe to be the early innings of major transformations such as the energy transition and the push to produce more with less from the agricultural industry.

Current Trends and Future Positioning

Several massive shifts are currently underway in commodity markets. HAP’s scope allows investors to potentially benefit from the attractive features of natural resources investing without omitting these important changes occurring.

Agricultural Innovation

Opportunities abound in the agriculture sector as current trends including agri-drones, artificial intelligence and robotics, precision farming, and others, have paved the way to make it possible to feed the forecasted 10 billion people on the planet in a few years. Deere and Company (5.13% of net assets), Corteva Inc. (2.38% of net assets), Bayer AG (2.26% of net assets), and Nutrien Ltd., (2.19% of net assets) are some of the companies that have made significant technological improvements in the agri-business industry. Coupled with unstable geo-political conditions in parts of the world, this sector has its fair share of potential risks, but agriculture and food demand, in general, tend to be more resilient during the peaks and valleys of economic cycles.

Energy Transition

Renewable energy is clearly the long-term future as governments focus on reducing their reliance on fossil fuels and improving the environmental impact of energy production.

Renewable energy sources are expected to provide between 45% - 50% of global generation by 2030 and between 65% - 85% by 2050. Solar is estimated to be the largest contributor of renewable energy, followed by wind.¹

Renewables dominate new generation, while clean firm and gas power generation increase across most scenarios

¹ Excludes generation from storage (pumped hydro, batteries, LDES (long-duration energy storage)).

² Other includes bioenergy (with and without CCUS (carbon capture, utilizationn, and storage), geothermal, and oil.

³ Includes gas and coal plants with CCUS, nuclear, and hydrogen.

Source: McKinsey Energy Solutions Global Energy Perspectiive 2023.

In addition to being the largest contributor of renewable energy, solar energy is forecasted to see about $2.8 trillion in global clean energy investments by 2030.

Source: S&P Global, https://www.visualcapitalist.com/global-clean-energy-spending-forecasts/.

S&P Global notes that “Investments in solar account for nearly half of the global total, with 26% going to smaller-scale “distributed” solar systems, such as rooftop solar panels across households, businesses, and other public institutions. Wind power is projected to attract the next largest slices of investments with more investments slated for onshore wind projects (20%), while offshore wind—which generates power on wind farms built across bodies of water—is set to receive $774.2 billion or 14% of estimated funds. Overall, current forecasts expect $700 billion per year of renewable energy investment through 2050. However, under a net-zero model, an annual figure of $1.4 trillion would be needed to reach zero emissions by 2050.”²

To achieve renewable energy, however, clean energy technologies are necessary to facilitate solar and wind. Copper, zinc, nickel, manganese, chromium, molybdenum, rare earths, silicon, and other metals are all sources of clean energy. Wind farms require copper for generators, wiring, tubing, cables, and transformers. Offshore wind turbines and solar panel fixtures need zinc to handle extreme environmental conditions. Climax Molybdenum Company, a subsidiary of Freeport-McMoran (1.84% of net assets), is one of the world’s leading molybdenum producer and supplier. Its affiliation with Freeport-McMoran, one of the largest producers of copper and zinc, is instrumental in the development of options to obtain clean energy.

It's no secret that nuclear energy and uranium are in the spotlight recently. The uranium spot price shot up from $24.63 in January 2020, to $100.25 in January 2024. Nuclear’s limelight is due in part to innovations. For more insights read A Resurgence of Nuclear Energy?.

With the energy transition well underway, we believe HAP allows investors to access all the desirable features commodity equities have offered historically while also directly participating in the innovations of tomorrow. Its exposure to renewable energy companies and miners producing the metals needed to power the energy transition are examples of just that.

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