Want a flow of copper bottomed profits? Try the metals driving a green revolution
AS THE global economy accelerates out of a pandemicinduced slump and to a greener future, there is one thing it is likely to need: metals. They are required in industry and manufacturing, while some are essential for green technology.
Such demand is the prime reason why investment house Amati Global Investors has just launched its Strategic Metals Fund.
‘As the economy starts accelerating there will be a pick-up in demand for base metals,’ explains Paul Jourdan, co-founder of Amati. ‘Over and above that, we’ve got the “energy transition” metals, which will be really key in facilitating electrification.’
The fund will invest in companies that mine metals such as gold, copper, nickel and rare earth metals.
The launch of the fund reveals the interest in shinier commodities, and Jourdan is not the only one to believe investors should be having a metal moment.
‘There is optimism around commodity markets once again,’ says Mark Hume, co-manager of investment trust BlackRock Energy and Resources Income. ‘There is more behind this new enthusiasm than global growth, with certain commodities poised to play a vital role in the new economy that emerges from the pandemic.’
There are many ways for ordinary investors to get exposure to metals. But it is sensible to understand how different types of metal perform first, and what they are used for.
PRECIOUS PASSIONS AND BASER PURSUITS
EVEN those of us who barely listened in science lessons at school will remember that metals react differently to physical stimuli.
When it comes to investing, the lesson is much the same. Metals react differently to various economic conditions.
‘There are two types of metal – precious and industrial – and they do different things at particular times of the economic cycle,’ says Darius McDermott, managing director of Chelsea Financial Services. Precious metals include gold, silver, palladium and platinum. They tend to hold their value even when stock markets fall. That is because they have diverse uses, including for jewellery and as a store of wealth.
Base metals include copper, lead, nickel and zinc. Unlike precious metals, they tarnish, corrode or rust when exposed to air or moisture. They are also more plentiful and are used primarily in industry. Their value tends to move in line with economic cycles. However, because it can take a long time for supply to catch up as demand changes, their prices are often volatile.
Other metals such as neodymium, vanadium and praseodymium are used in the production of electric vehicles and electricity generation. They are likely to gain value as we move towards a low-carbon economy.
METALS THE EXPERTS LIKE
MANY metals experts favour copper as a bet on green growth. BlackRock’s Hume says: ‘It is estimated that an electric vehicle has four times the copper content per vehicle when compared with an internal combustion engine car.’
He believes that investing in copper is a cheaper way of getting exposure to the green economy than investing in wind turbines or renewable energy utilities.
Teodor Dilov, a fund analyst at investment platform Interactive Investor, says copper demand has doubled in the past 25 years, adding that the metal can be 100 per cent recycled. He says: ‘It is a key material for innovation in the renewable energy, healthcare, energy efficiency and transportation sectors.’
Rob Crayfourd and Keith Watson, who manage resource based investment funds for New City Investment Managers, describe copper as ‘our favourite way to play the energy transition’.
They believe that copper is ‘the key metal for electrification, used in everything from electric vehicles to renewables’, arguing that demand for copper is likely to grow, but supply will struggle to catch up due to long lead times to get new mines in production.
Lee Wild, head of equity strategy at Interactive Investor, says demand for vanadium, used in storage systems for renewable energy, is likely to increase. He suggests fans of the metal buy into South African producer Bushveld Minerals. He also favours lithium, used in electric vehicle batteries.
Ewan Markson-Brown, manager of investment trust Pacific Horizon, invests in nickel, which is also used in electric vehicles, via holdings in PT Vale Indonesia and Nickel Mines. He says he believes that prices will continue to rise for metals used in electric cars.
He adds: ‘We believe that for the green revolution to succeed, metals prices will need to be significantly higher to induce increased mining output in the next few years.’
HOW TO GET EXPOSURE
THERE are many ways to invest in metals, without resorting to storing a crate under your bed.
One of the easiest routes to track the price is by investing in an exchange-traded commodity fund. Interactive Investor’s Dilov mentions the WisdomTree Copper fund, which tracks the Bloomberg Copper subindex.
There are a number of funds that track the gold price, while companies such as BullionVault allow you to hold and store physical gold.
In terms of investment funds, McDermott mentions Jupiter Gold & Silver for fans of precious metals. The fund has delivered a return of 91 per cent over five years and holds mining stocks as well as physical metal.
Dilov also likes exchange-traded funds WisdomTree Battery Solutions and L&G Battery Value-Chain – both thematic funds linked to the electrification of vehicles.
Investing in mining companies is another option. For precious metals, McDermott mentions the fund Ninety One Global Gold, which is up 74 per cent over the past five years. It invests in gold mining companies. He also likes the new Amati Strategic Metals Fund.
‘The managers, although unknown to most investors, are experienced,’ he says.
‘They worked in the mining industry before gaining their broad experience across all metals in the financial services industry.’
Dzmitry Lipski, head of funds research at Interactive Investor, likes BlackRock World Mining because of its exposure to copper, a key driver of investment performance last year.
Whether you are a heavy or a precious metal fan, it is worth remembering these assets can be volatile, so they should be only part of a diversified investment portfolio.