3 Reasons to Hold Resource Equities | ETF Trends

By Shawn Reynolds
Portfolio Manager, Global Resources, Environmental Sustainability
Andrew Musgraves
Senior Product Manager

Persistent inflation, fiscally responsible resource company management and anticipated company capital returns continue to provide investment opportunities in the resource equity sector.

Resource equities have experienced a tremendous run over the last several years, with some companies seeing double or even triple-digit gains. For most investors who have been through one or more previous commodity super cycles, this likely feels like an opportune time to take gains and sit back on the sidelines. However, in our view, this is also likely the wrong line of thinking right now from a strategic allocation standpoint. An expanded PDF version of this commentary, including fund specific information can be downloaded here.

  1. We’re not through the woods yet with inflation – Despite aggressive attempts by the U.S. Federal Reserve (Fed) to combat it, inflation hasn’t fully subsided yet. And while U.S. inflation has come down from highs last seen 40 years ago, it still remains at levels last seen only 32 years ago and well above the Fed’s 2% target. Over this inflation cycle, resource equities have proved – as they have in the past – that they can be an ideal hedge against steadily rising and/or persistently high prices.
  2. Resource companies are different today – Resource companies have gone to great lengths to mitigate some of the operational and business strategies which often subjected them to greater to boom/bust cycles in the past. In particular, managements have become more financially prudent by foregoing outsized capital expenditure programs, deleveraging their balance sheets and carefully managing their hedging strategies.
  3. You’re getting paid to wait – While some resource equity companies are cutting back on dividends this year, the amount of anticipated capital return in the space is still significant. In fact, as of end-March, Energy and Materials sectors of the S&P Global 1200 Index – sectors comprising a majority of the resource equity space – continue to boast the highest estimated dividend yields among all other sectors. For investors waiting to redeploy capital, keeping their money parked in resource equities is akin to getting paid to wait.

S&P Global 1200 Sector Dividend Yields

S and P Global 1200 Sector Dividend Yields

Source: Bloomberg. Data as of March 31, 2023. Indices are not securities in which investments can be made. Past performance is not indicative of future results.

Originally published by VanEck on April 27, 2023. 

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The S&P Global 1200 Index is a free-float weighted stock market index of global equities from Standard & Poor’s. The index was launched on Sep 30, 1999 and covers 31 countries and approximately 70 percent of global stock market capitalization.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.

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