Equity and fixed income markets generally look expensive, and expected returns are low. Investors often look to real assets for a different source of returns, and right now we see a couple exciting opportunities in the real assets world where valuations are at the most attractive levels we’ve ever seen. In this session, Lucas White, lead portfolio manager of the GMO Resources and Climate Change Strategies, discusses these opportunities.
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- Over the long term, Resource Equities have delivered strong returns that have been uncorrelated with the overall market, especially during inflationary periods. Today, Resource Equities are trading at around a 75% discount to the broad market, an unprecedented valuation disconnect.
- The transition to clean energy will play out over decades. In the meantime, the global economy will continue to rely heavily upon fossil fuels.
- There will be tremendous opportunities in the materials that drive clean energy solutions, such as copper, lithium, and nickel.
- Clean energy and climate solutions will require decades of secular growth in order to displace fossil fuel-based alternatives. Yet, we’ve been able to build a portfolio of attractively valued companies with exposure to growth in solar, biofuels, batteries & storage, electric vehicles, etc.
- Our Climate Change Strategy trades at more than a 40% discount to the MSCI All Country World Index, the largest discount since inception almost five years ago.
Valuation of Energy/Metals Companies Relative to the S&P 500
As of 9/30/2021 | Source: S&P, MSCI, Moodys, GMO
Valuation metric is a combination of P/E (Normalized Historical Earnings), Price to Book Value, and Dividend Yield.
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