Executive Summary:
- We believe the prices of many commodities will rise in the decades to come due to growing demand and the finite supply of cheap resources.
- Public equities are a great way to invest in commodities and allow investors to:
- Gain commodity exposure in a cheap, liquid manner
- Harvest the equity risk premium
- Avoid negative yields associated with rolling some futures contracts
- Resource equities provide diversification relative to the broad equity market, and the diversification benefits increase over longer time horizons.
- Resource equities have not only protected against inflation historically, but have actually significantly increased purchasing power in most inflationary periods.
- Due to the uncertainty surrounding, and the volatility of, commodity prices, many investors avoid resource equities. Hence, commodity producers tend to trade at a discount, and they have outperformed the broad market historically.
- While resource equities are volatile and exhibit significant drawdowns in the short term, over longer periods of time, resource equities have actually been remarkably safe investments.
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