Natural Resources Background & Investment Strategy April 26, 2011

Natural ResourcesBackground & Investment Strategy

April 26, 2011

2

What’s a Natural Resource?

Something you FIND…not MAKE.Something you NEED…not WANT.

3

What do we use them for?

Natural resources are used to…• Build things

4


Natural resources are used to…• Build things• Provide energy & power

• Act as a currency• Make friends• Make enemies• Create policy

• Make money• Bet on growth• Diversify an investment

portfolio

5





portfolio

6





portfolio

7





portfolio

8





portfolio

9





portfolio

10





portfolio

11





portfolio

Global Equities

40%

Fixed Income20%

Absolute Return

15%

Real Assets15%

Private Equity10%

Asset Allocation

12

Types of Natural ResourcesENERGY & POWER BASIC MATERIALS

Oil CopperNatural Gas Aluminum

Wind TimberSolar UraniumCoal

WaterFOOD & AGRICULTURE PRECIOUS METALS

Corn GoldSugar SilverCattle PlatinumWheat Palladium

Soybeans

13






Soybeans

14






Soybeans

15






Soybeans

16






Soybeans

17

Where are they?

18

Power & Energy

19

Basic Materials / Precious Metals

20

Food & Agriculture

21

Investment Characteristics

Natural resources generally…• act as an inflation

hedge

22



hedge• act as a portfolio

diversifier• are highly volatile

SPGNRE EEM EWAC MXEA SPX LUASTR0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Correlation: 2002 - 2011

23



hedge• act as a portfolio

diversifier• are highly volatile

0

10

20

30

40

50

60

70

80Volatility: 2002 - 2011

Fixed Income (10-yr AVG: 4.20)

Stock Market (10-yr AVG: 18.76)

Commodities (10-yr AVG:25.20)

24

Investment Options

Commodities• Direct exposure to the

underlying resource

Investor

Natural Resource

Commodities vs. Equities

25

Investment Options


underlying resource• Can be a physical

holding…


26

Investment Options


underlying resource• Can be a physical

holding…• or a derivative

investment


27

Derivative Investments

• Regulated by the CFTC

• Traded on multiple exchanges

• Agreements to buy/sell pre-determined quantities of a commodity at a date specific in the future

Commodity Futures are…

http://www.cftc.gov/index.htm

http://www.cmegroup.com/

28

Derivative Investments

• Leveraged

Commodity Futures are…

29

Commodity Futures

Benefits• Unfettered exposure

to natural resources• Leverage through

futures• Financial asset• No management

Drawbacks• Highly volatile• Complicated• Leverage through

futures• Financial asset• No management

30

Natural Resource Equities

Equities• Own shares of a

company

31



company• Can be directly owned

or through funds or ETFs

http://www.vaneck.com/

32



company• Can be directly owned

or through funds or ETFs

• Traded on standard exchanges

33


Benefits• Easily traded• Less volatile than

underlying commodities

• More diversified• Not levered• Actively managed

Drawbacks• Indirect exposure• Higher market beta• Not levered• Dependent upon

management• Can go out of business

34

In Summary

Natural Resources are…

…found and not made…needed vs. wanted (price inelastic) …a bet on growth…uncorrelated to financial markets…used to diversify a portfolio…available for investors in multiple forms

35

In Conclusion


…to be bought and SOLD, not bought and HELD

36

In Conclusion

Natural resources don’t make money over time.

37

In Conclusion


…to be bought and SOLD, not bought and HELD…dangerously volatile

38

In Conclusion

04/25/0702/08/0711/22/0609/11/0606/27/0604/12/0601/27/0611/10/0508/29/0506/15/0504/01/0501/14/050

5

10

15

20

25

30

35Daily Volatility: SPGSCI & SPX

SPX: AVG 12.2

39

In Conclusion

04/25/0702/08/0711/22/0609/11/0606/27/0604/12/0601/27/0611/10/0508/29/0506/15/0504/01/0501/14/050

5

10

15

20

25

30

35Daily Volatility: SPGSCI & SPX

SPX: AVG 12.2

SPGSCI: AVG 23.7

40

In Conclusion


…to be bought and SOLD, not bought and HELD…dangerously volatile…irrational

41

In Conclusion

42

In Conclusion

Natural Resource investments are…

…to be bought and SOLD, not bought and HELD…dangerously volatile…irrational…complicated

43

In Conclusion

44

In Conclusion

Natural Resource investments are…

…to be bought and SOLD, not bought and HELD…dangerously volatile…irrational…complicated…a key component to a diversified portfolio

Natural ResourcesBackground & Investment Strategy

April 26, 2011

Documents

Natural Resources Background & Investment Strategy April 26, 2011