Protect Against Geopolitical Risk and Prepare for Rate Cuts

Natural Resources Update and Outlook, Q3 2024

I think one of the biggest developments so far this year, has been the sense of geopolitical risk and how that's imputed into terms of, know, do you need an allocation to this space or not? The idea that inflation protection, leverage to global growth and diversification has always been there with regards to resource equities. But I think more and more people are thinking about an insurance policy against geopolitical risk. I mean, you obviously Russia's invasion of Ukraine, you've got all the conflicts in the Middle East going on and what that does to supply. And a lot of people are realizing that they can wake up any day, any single day, and something can dramatically happen to impact the commodity space and therefore the resource space and therefore their overall portfolio. And this is a protection against that.

How has this impacted the positioning of your portfolio strategy?

We're looking for more and more security supply situations. Geopolitical risk actually works somewhat against you in the resource space as well. If you happen to be in a country that is, say, Ukraine, it was impacted by the invasion from Russia and impacted their exports of grain, for example. So you want to make sure you're in a very secure spot in their security supply. There's also a cost issue associated with that.

So we scan the world looking for where we have to be to find where you can deliver those resources at a price and availability that's good for all.

How will potential rate cuts affect the possibility of global growth?

You have to really look at the rate increases that we had and what impact that had specifically with regards to renewable energy resources. And so you have to believe that the reverse will come true. If you lower rates, certainly your more risky assets are going to become more valuable.

And we've seen that time and time again. So certainly if we have some sort of decrease in rates and it looks like it's September timeframe or certainly into the fourth quarter, that's positive for your renewable space. But also it's positive for I think economic growth around the world, which again is a leverage that this type of portfolio really has.