The four commodities that stand out in a potential supercycle

With the end of financial year upon us, now is the time where we all cast a discerning eye over our portfolios, and figure out what we want to keep, and what we want to cut. 

With that in mind, we've reached out to a handful of fund managers across various asset classes to bring you insights into what has worked in their respective spaces so far in 2024, what has surprised them, and how the are positioning portfolios for the back half of the year. 

Over the coming days, we will be releasing Rapid Fire conversations with managers across Australian equities, global equities, property, alternatives and - in today's instalment - commodities.

Janus Henderson's Head of Global Natural Resources, Daniel Sullivan, believes the sector is in the midst of an exciting growth phase. The demand-supply equation across several raw materials has become especially tight. 

In the following, Sullivan unpacks the first half including the biggest surprises and explains how his portfolio might change in the second half.

What has been the biggest driver of returns in this sector in 2024 so far?

In the first half of 2024, it’s been a case of “every cloud has a silver lining”! We’ve seen some strong returns from commodities, with silver the standout, up 26%.

The three largest traded commodities have also delivered solid gains for investors with gold up 13%, oil up 14% and copper up 15%. Uranium is holding at a cyclically high price, -4%, and lithium stabilising at a cycle-low price -3%.

On the flip side, iron ore so far has been the notable weak commodity, down -22% while China still attempts to balance its dependence on the property market with moderating growth.

What have been the biggest surprises since January and how have they affected the way you’re invested?

As long-term natural resource specialists, we’re used to seeing highs and lows in individual commodities. However, it is always a pleasing surprise to see many of our preferred commodities perform strongly since January of this year, into a May peak.

• Silver and copper were particularly strong, up +30% at the highs.
• Nickel also traded up +30%, but this has since fallen back, now up a modest +4%.
• Gold has had good performance, increasing +13% and consolidating at all-time high prices around US$2,350/oz.
• Iron ore was weaker than we expected, but we have only modest exposure there on behalf of our investors.

Renewed lithium price weakness in the last two weeks has been surprising given the -70% correction through the second half of 2023 and the stabilisation of the past five months.

What is the biggest risk to your outlook - what would cause you to change your investment thesis?

The strategy is positioned as follows: mining - 42%, uranium - 6%, oil & gas - 30% and agriculture - 20%.

• In mining, we see value and growth in companies in the gold, silver, copper and lithium sub-industries.
• Oil is high and stable and the companies remain cheap.
• Fertiliser companies are trading near the bottom of a deep cycle.

We expect value realisation to be led by the corporates who recognise value and are setting up for the next 10-20 years. This will be via mergers and buybacks, both of which have been very active in the last year.

Resource companies remain sensitive to global growth and expectations, so a higher interest rate move, or marked slowdown in China, would weigh on the companies in the short term.

How will your portfolio look in the second half of calendar 2024, versus the first half?

We have been slowly adding to positions in lithium, up from 4% to 6%. As commodity prices stabilise, we expect to have this fast growth and dynamic sector rebuilt to a longer-run allocation closer to 10%.

What is the biggest opportunity you see for the rest of the year - what has you most excited?

Natural resources as a sector in which to invest is never not exciting! A number of companies in our sector trade reasonably cheaply with low investor expectations, particularly for gold, lithium, oil and fertilisers, which make for some interesting investment opportunities.

The coming decade looks likely to rival the growth impulse of the China-led super-cycle of 2004 to 2008. The companies in which we invest are well aware of the short window available to position themselves appropriately before the next structural uplift occurs.

What advice would you give to investors considering investing in your asset class?

Global natural resources can offer excellent diversification benefits to global equity exposure, with different cyclical and structural drivers. However, it remains an asset class requiring specialist skill and expertise to be able to pick the winners from the losers.

The cyclical factors we’re seeing today are already looking positive, and market expectations of strong structural growth and rerating appear well founded. In short, it’s an interesting time to be a resources investor.

Managed Fund

Janus Henderson Global Natural Resources

Global Shares

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