Lonsec releases natural resources sector review


Lonsec has released its 2010 review of the Natural Resources sector, encompassing 11 funds across the three Natural Resources sub-sector lines:

  • Resources: Investments participating in the energy, industrial metals and precious metals sector.
  • Commodities: Investments participating in the livestock, grains and softs (sugar, cotton, coffee, cocoa) sector.
  • Agribusiness: Investments participating across the food and fibre production to consumption value chain, including resource owners, producers, facilitators, value adders, collectors and distributors.

Lonsec awarded its premier ‘Highly Recommended’ rating to two Global Equity funds – Colonial First State Global Resources Fund and the Colonial First State Global Resources Long Short Fund; and to one
Australian Equity fund – EIM Emerging Resources Company Share Fund.

Richard Ellis, Natural Resources Investment Analyst, commented, “Although the past 12 months have seen changing economic conditions and choppy financial markets globally, the long term investment prospects for natural resources is positive. Lonsec expects the universe of funds in this sector to grow into next year’s review cycle.”

“The sector has gained momentum in recent years due to several fundamental factors on both the supply and demand side. “

Developments in this sector have been underpinned by increasing public awareness of global population growth, trends in urbanisation and industrialisation, and climate change issues which are driving companies to capitalise on developments in food productivity, carbon, water, energy and renewable energy.

“With the United Nations predicting a 33% increase in global population to 9.1 billion in 2050, Lonsec expects an overwhelming increase in global demand for infrastructure and foodstuffs which needs to be
produced from finite resources,” Ellis said.

Contributing factors for increased demand for Natural Resources

Global population growth is expected to produce a number of interrelated issues and competing forces for global food and resource supplies that present compelling long term opportunities for investments across the full breadth of the Natural Resources sector.

Increasing affluence in developing countries

“The rising income of populations in developing countries, particularly Brazil, Russia, India and China is expected to result in a shift away from starch-based diets to a greater consumption of protein such as beef,
pork, poultry and dairy. Increased protein consumption increases grain requirements for livestock production, which consequently has a multiplier effect on global grain demand,” commented Ellis.

Alternative energy

As a consequence of climate change concerns, alternative energy sources such as biofuels are fast becoming a substitute for traditional energy sources. “The production of biofuel relies heavily on inputs from feedstuffs and consequently increases competition for food supplies,” said Ellis.

Land scarcity

With the urban sprawl effect, competing land uses, land degradation and changing climate conditions impacting on the productivity of some agricultural regions, arable land available for cultivation on a per
capita basis is declining, placing increased pressure on future productivity.

Water availability

Accordingly to UN-Water, just 2.5% of the world’s water is fresh. “This results in considerable pressure to maximise water use efficiency in food production systems to sustain increased productivity,” remarked Ellis.

“Competition for fresh water is also expected to increase in response to population growth and industrialisation.”

Lonsec has witnessed investment management firms respond to demand from sophisticated investors and financial advisers by developing new investment products which are active in the natural resources space.

Products which have emerged are diverse in their investment strategies, although share a common philosophy in that long term opportunities exist in the Natural Resources sector, underpinned by increasing
global demand.

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