Evolving world has fewer raw materials, but more demand; time to pounce, fund manager says
It's time to load up on natural-resource-related investments, according to Aaron Kennon, head portfolio manager and chief executive at Clear Harbor Asset Management.
Mr. Kennon, whose firm manages more than $400 million in separate account portfolios, focuses on a host of macro-demographic trends to help determine how to allocate within a natural resources investment strategy.
“The global demand for energy over the next 25 years is expected to increase by 25%, and China and India will account for 50% of that increased demand,” he said.
The increased demand for all manner of natural resources will not just come from population growth, he added. It is also being driven by a fast-growing middle class.
More people consuming more goods and services, he said, will place more emphasis on the need for technological advancements and ways to better utilize the already diminishing available land and resources.
“In 1961, there was one acre of arable land per capita around the globe, and today there is half an acre of arable land per capita,” he said. “With the rising population and growing middle class, there are investment opportunities in ways to get the most of that land.”
Mr. Kennon's bullishness on natural resources is bluntly present within his natural resources separate account portfolio. His allocation to companies involved in drilling and exploration for oil and gas, for example, makes up 22% of the portfolio.
By comparison, the benchmark S&P Global Natural Resources Index has just a 2.7% weighting in drilling and exploration companies.
Mr. Kennon also has a 36% weighting in gold and precious metals, which compares with an 8.2% benchmark weighting.
His favorites include Pan Orient Energy Corp. Ticker:(POE.V) and Sandstorm Gold Ltd. Ticker:(SSL.V). Pan Orient is a Canadian oil exploration and production company with most of its operations based in Southeast Asia.
“This is probably one of the cheapest E&P companies in the world,” Mr. Kennon said. “It's also regulated in Canada, but operating in the most strategic markets.”
Sandstorm, a company that provides capital to gold mining companies in the development and early production stages, is a play on the growth of the precious metals space. “They've got no debt, significant free cash flow, and they're funding mining companies in politically safe locations,” Mr. Kennon said.
The natural resource strategy was launched as a separate portfolio at Clear Harbor on Feb. 1, but it has been a subcategory within the firm's larger “go-anywhere” strategy since February 2010.
According to Mr. Kennon, the strategy has gained 9.7% since the start of the year. By comparison, the natural resources benchmark is up 4.4% and the S&P 500 is up 8.3%.
Since inception, the strategy has generated an annualized return of 25.6%, compared with 3% for the benchmark and 12.7% for the S&P 500.
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