Global Natural Resource Equities
The strategy seeks to maximize total returns by investing in natural resource companies that produce commodities and other real assets. This includes energy producers, metals & mining companies and agriculture-based businesses.
WHY COHEN & STEERS
Proprietary risk parity investment approach
Using quantitative methods, including factors like volatility and correlations, we seek a more risk-appropriate global investment universe starting point
Balanced fundamental analysis
Rigorous and disciplined investment process that features proprietary resources and focuses on top-down sub-sector analysis as well as comprehensive bottom-up security analysis and research
Experienced, dedicated team
With an average of 18 years experience, our Natural Resource Equities team includes dedicated analysts and can tap the full suite of Real Asset specialist teams at Cohen & Steers
WHY NATURAL RESOURCE EQUITIES
Real asset investment
Target companies are involved in the production of tangible assets, with barriers to supply, and can be a potential hedge against inflation
Complement to commodities
Tends to perform well at different points in the economic cycle relative to commodities, while also accessing divergent themes not available via commodities futures
Diversification benefits
Distinct drivers of risk and return, which generally lead to relatively low correlations with other real assets, stocks and bonds
The Cohen & Steers Global Natural Resource Equities Strategy invests primarily in natural resource companies that produce commodities and other real assets. In addition, these assets are linked to critical, and often depleting, commodity-related resources. The investment universe consists of approximately 200 companies that fall largely into three major sectors:
- Agribusiness—food, machinery, and chemical companies
- Metals & mining—precious and industrial metals stocks
- Energy—oil and natural gas companies
Many natural resource equity portfolios are built according to market capitalization, often resulting in high weights in energy stocks. Our risk parity approach was created out of a recognized need for a smarter, more risk-appropriate global investment universe of natural resource equity companies.
Our risk parity approach uses quantitative methods designed to equally weight the three core subsectors of the asset class—energy, agribusiness and metals/mining—based on their respective contribution to overall risk. We believe this may help to reduce volatility, while providing a better balance across sectors.
We believe our Global Natural Resource Equities strategy’s risk parity based approach, combined with fundamental research allows us to capitalize on expected long-term demand growth for natural resources.
FEATURED INSIGHT
Opportunities in the era of scarcity
The world is transitioning from an era of commodity abundance to one of undersupply. We believe this shift may result in significant returns for commodities and resource producers over the next decade.
December 2023 | 25 mins
Why invest with us
Delivering value to our clients
Cohen & Steers has been at the forefront of real assets investing for more than 35 years. Our dedication, combined with our drive for excellence, has led us to build a foundation that is designed to provide sustainable outperformance relative to our peers.
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PORTFOLIO MANAGEMENT
An experienced team
+3 analysts
An allocation to natural resource equities offers the potential for attractive returns and inflation hedging, often used as a portfolio diversifier due to low historical correlations with stocks and bonds. We believe active management of natural resource equities can exploit numerous factors which can impact longer-term value.
Factors include the size and scale of operations, labor relationships, asset complexity, environmental, social and governance (“ESG”) considerations and geopolitical risks. Supply and demand economics of the underlying natural resources can also play a large role in determining which stocks are expected to perform better or worse at any given point in the cycle.
Equity investments tied to valuable real assets
Natural resource stocks represent ownership interests in companies that produce tangible assets linked to critical and often depleting commodity-related resources, with barriers to supply driven largely by capital intensity requirements.
Historically low correlations with traditional stocks and bonds
Natural resource equities’ correlation history with broad stock and bond markets indicate the potential to achieve results that are not tied to other securities or debt instruments, providing potential diversification benefits.
Increased inflation sensitivity
Similar to other real assets categories, returns for natural resource equities have shown attractive levels of sensitivity to unexpected changes in inflation.
Balanced sector allocations based on contribution to risk can create a more attractive risk-return profile
Because energy- and mining-related companies comprise a large share of the asset class, natural resources strategies with a carefully constructed sector approach can have beneficial risk-reward profiles compared with passive or capitalization-weighted approaches. Cohen & Steers’ risk-parity approach is unique among our natural resource equity peers.
Opportunities to gain value through active management
Understanding the supply and demand economics of the underlying natural resources can play a large role in determining which stocks have outperformance potential at any given time.
A prospective complement to commodities investing
Historically, natural resource equities offer access to subsectors not available in commodities futures and have shown a lead/lag relationship with the economic cycle, while commodity prices respond more directly to near-term economic activity.
APPROACH
Our investment process
We employ a proprietary risk parity approach, which uses a quantitative methodology to weight three core components—energy, metals & mining and agribusiness—according to their respective contributions to overall risk.
Risk parity universe construction
After identifying the initial universe of securities, quantitative analysis assigns risk parity weights to the three sectors to equalize their contribution to risk. Output is the framework for our bottom-up investment process.
Trend analysis
The team looks for subsectors with pricing dislocations caused by macroeconomic factors. We utilize a proprietary analysis of global supply/demand forecasts and focus on subsectors with highest potential for alpha generation.
Fundamental analysis
Companies are ranked based on quantitative screening and the team meets with management and visits assets for selected companies. We identify security relative value using valuation metrics relevant to each industry.
Portfolio construction
Securities are weighted relative to conviction level, integrating our subsector trend analysis with bottom up fundamental views. Risk management guidelines include maximum allocation to sector, subsector and security level exposure.
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Capital Market Assumptions: Expectations for the next 10 years amid a generational change for markets
We expect higher fixed income and real asset returns alongside lower U.S. equity returns for the next decade.
InvestmentNews: Cohen & Steers strategist sheds new light on investing in energy sector
Portfolio Manager Tyler Rosenlicht joined InvestmentNews’ IN the Nasdaq to discuss his outlook for the future of energy and why he believes existing investment strategies provide a limited view of the asset class. He discusses why global energy demand is driving the need for energy addition, requiring both traditional and alternative energy to satisfy this demand.
Secular drivers of inflation
Recent data indicates a slowing inflation trend, yet risks persist. Secular forces suggest that a prolonged elevated inflation period is underway with the potential for periodic price spikes. Factors driving long-term inflation include commodity underinvestment, tight labor markets, geopolitics, deglobalization and fiscal uncertainty. We see parallels to past inflationary eras, which highlight the difficulty of controlling inflation. While not predicting a return to 9%, the expectation is for a decade of higher-than-accustomed inflation, underscoring the importance of having a real assets allocation.
Opportunities in the era of scarcity
The world is transitioning from an era of commodity abundance to one of undersupply. We believe this shift may result in significant returns for commodities and resource producers over the next decade.
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We’d be happy to answer questions about our investment solutions or any corporate-related inquiries.
We consider the information in this communication to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of suitability for investment. Investors should consult their own investment professional with respect to their individual circumstances.
Past performance does not predict future returns. Risks involved with investment, including potential loss of capital, are substantial and should be carefully considered. The views and opinions are as of the date of publication and are subject to change without notice. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend will begin. There is no guarantee that a market forecast made above will be realized. Active management is not guaranteed to outperform the broader market index.
Important Risk Considerations: Investing involves risk, including entire loss of capital invested. There can be no assurance that the investment strategy will meet its investment objectives. Diversification is not guaranteed to ensure a profit or protect against loss. The market value of securities of natural resource companies may be affected by numerous factors, including events occurring in nature, inflationary pressures and international politics. Because the strategy invests significantly in natural resource companies, there is the risk that the strategy will perform poorly during a downturn in the natural resource sector.