IEP Financial: Making your money work harder for you

Ian Poysden, Managing Director of IEP Financial Ltd, on investing in natural resources

Looking at the future prospects for this volatile investment area, it continues to see further falls in values against what has been a buoyant time for equities in general. I have always promoted the need for clients to have a well diversified portfolio that doesn’t leave a client over exposed to any one particular area. Having all your eggs in one basket is inherently risky and should be avoided. For those with an appetite for taking a high level of risk, an allocation to natural resources may offer the opportunity for strong long term returns.

Market timing is not an exact science and therefore picking the right time to buy is never easy, but having canvassed opinion from fund managers the following ten points indicate a possible return in fortunes for this currently out of favour asset class.

1. Global growth is picking up: Commodities have suffered in the low growth environment of the last few years, but expectations for the global economy are now improving.
2. China still needs infrastructure: As people continue to move to urban areas, the Chinese government is investing heavily in the smaller cities and in mass transit systems.
3. Other emerging markets need to play catch up: Demand from rapidly urbanising economies such as Indonesia, the Philippines, Bangladesh and Vietnam is expected to surge over the next decade.
4. India has lagged behind: Compared with China, India has massively underinvested in infrastructure. It must now catch up to support an urban population that is expected to almost double between now and 2030.
5. India urgently needs better transport and housing: Around 350-400km of new subway and 700-900 million square metres of housing and commercial development will be needed every year from now to 2030.
6. Rising Chinese consumption will create demand for oil and gas: China has historically consumed much less oil than western economies, but demand is expected to grow as the new middle classes buy cars.
7. Growing emerging market wealth means greater demand for luxuries: Diamonds, gold and other precious metals are all set to benefit from the appetite for luxury goods.
8. Dwindling supply also supports prices: The copper price has risen much more than the aluminum price over the last decade, even though demand for aluminum has grown faster. The reason? Supply. Copper miners have struggled to increase production, while aluminum is plentiful.
9. New supply is hard to come by: New reserves of many commodities are in harder-to-reach places and are more expensive to extract, providing long term support for prices.
10. Share prices look attractive: With the natural resources sector currently unloved by investors, shares in well-managed companies may be available at attractive prices.

Exposure to natural resources will not be appropriate for all investors and therefore seeking independent advice is in my view essential. Equally those clients that currently invest in this area should not make knee jerk reactions to the recent losses by selling any holdings without seeking further advice.

The above opinions should not be deemed as individual advice as each client has a unique financial situation and needs. Please note that investments can go down as well as up and you may not get back what you invest. IEP Financial are authorised and regulated by the Financial Conduct Authority.