Natural Resources Could Add Some Zig to Your Portfolio

Natural-resource stocks continue to offer benefits to a diversified portfolio.

The S&P Global Natural Resources Index has returned nearly 25% year to date through November—bettering the 17.8% total return of the S&P 500. During 2022, when Russia invaded Ukraine, the index returned a solid 9.6%, while the S&P 500 lost over 18%.

As you can see, diversification offers the potential for some of your investments to zig when others zag. Natural resources’ zig is particularly useful because it can act as a hedge against unforeseen geopolitical events.

Natural resources range from gold and precious metals to water and agricultural goods, as well as all types of energy. Gold often gets the most press because of its historic role as a store of value. When the stock and bond markets look shaky, the banking system appears strained, or war threatens to spill over into the global economy, gold often provides a counterbalance for investors.

Agricultural goods and energy prices all reflect global supply and demand. While AMG does not expect another Russian incursion in Europe to drive up wheat prices or a Middle East crisis to knock energy costs sky high, it certainly pays to be prepared. Most countries explicitly prioritize food and energy security in government policies. However, growing geopolitical tensions tend to inhibit the free flow of food and energy supplies, periodically leading to price spikes despite government planning.

Bottom line: Natural-resource companies in the western world are well positioned to capitalize on gold’s use as a financial-system alternative, energy and food policies that lead to supply/demand dislocations, growing geopolitical tensions, and crises that cause price spikes. Talk to an AMG advisor about adding some zig to your zag.