In the world of asset managers, VanEck is a significant player. It has approximately US$240 billion ($335.7 billion) under management. It was also the first company to offer a gold miners ETF in the US.
Arian Neiron is managing director and CEO of VanEck’s Asia Pacific arm. In a recent article, he said commodities have not been this cheap relative to US equities since the 1990s technology boom. VanEck believes investors are underexposed to the asset class.
Neiron argues that the favourable trends that have suppressed commodity prices over the past 15 years are dissipating. Supply chains are shrinking, while demand is rising and supply remains constrained. Global credit is also continuing to rise, putting pressure on prices and costs.
He adds:
“Global energy use has more than tripled since 1960. The International Energy Agency (IEA) expects global electricity consumption to rise from around 28,200 terawatt hours in 2025 to 33,600 by 2030 — an extra 1,100 terawatt hours a year, roughly 50% faster than the past decade.
“Electric vehicles and data centres are the fastest-growing loads; the IEA sees data centre consumption climbing from around 415 terawatt hours to roughly 1,200 by 2035. Every additional terawatt hour needs copper, lithium, steel, and concrete.”
Neiron also cites a paper investor Jeremy Grantham wrote a decade ago about the global decline in abundant resource supplies.
In hindsight, the paper was published around the time of a peak in the commodity cycle. To be fair to Grantham, his time frame looked back and forward in decades, rather than focusing on quarterly or even yearly swings.
Commodities underperformed US equities over the last decade.
There was the surprise boom in oil production, which suppressed oil prices for much of this period, along with general economic weakness across the West that drove interest rates to zero. Most US businesses pivoted towards ‘services’, which were not particularly resource intensive.
That’s no longer true. The explosion in AI, and therefore demand for computing power and electricity, is driving huge capital spending:
Source: Charlie Bilello
That could cause a sector shift back toward natural resources as an asset class.
Neiron points out that since 1997, trillions of US dollars have flowed into bond market funds, while flows into global commodity funds have been barely positive.
That creates the potential for a reversal, as investors seek exposure to rising demand and protection from the inflationary effects of higher resource prices.
Write to Callum Newman at Mining.com.au
Images: Charlie Bilello & Unsplash
