Natural Resources Ripe for a Diversified Portfolio 

The investment case is growing for diversifying into natural-resource stocks like agriculture, mining and energy. 

For years, the sector has been plagued by persistent underinvestment in infrastructure to increase supply. More specifically, over the past year, cyclical weakness in natural resources has largely reflected a slump in the global economy. Both factors now provide an entry point for opportunistic long-term investors. Even as share prices have moderated, there are signs of a recovery in global manufacturing—a key driver of natural-resource demand. Emerging and developed economies alike are seeking more basic resource-related products like fertilizer to grow crops, oil and natural gas to power autos and homes, and metals like copper that are essential to alternative-energy projects and electric vehicles. 

Geopolitical risks and changes in the world order also support the long-term investment thesis for natural resources. These assets can provide a hedge to events that curtail global supply. Look at how the Russian invasion of Ukraine led to a spike in oil, natural gas and agricultural costs, which in turn drove up related stock prices. Similarly, Israel’s retaliatory invasion of Gaza and concerns about a broader regional war also have sent some resource prices higher. 

Bottom Line – Over the long run, the combination of underinvestment in natural-resource supply and a global manufacturing slump is being met with growth in demand against a backdrop of heightened geopolitical risk. Portfolio diversification can benefit from a conservative allocation to natural-resource stocks for the long run.