The screen on which you are viewing this article is a collection of materials derived from raw materials. The world, because of its growth, requires more and more natural resources. We will therefore look in this article at why investing in commodities can be integrated into your portfolio and with which financial products you can invest in commodities.
Investing in natural resources means investing in minerals, oil, natural gas, water, precious metals. Basically, if it is cut or collected from above or below the earth, it is a natural resource on which to invest. Hydrocarbons, water, wood, minerals of all kinds… Their extraction allows us to foresee attractive financial perspectives.
We are going to zoom in on four major families of resources that have good potential for value creation: Water, forest, oil and gold.
Invest in water
Water is at the crossroads of two dynamics: a world population that will reach nearly 10 billion inhabitants by 2050, according to the UN, and accelerated urbanization. In this context, what will pay off is the distribution and modernization of urban networks, rather than the fact of drawing water. The water business is worth €600 billion a year,” says Hervé Thiard, managing director of the investment fund Pictet AM. And the market is growing by 5% per year. Shares of companies in the sector appear as long-term assets in a portfolio. “The advantage is that it is possible to invest in a wide variety of companies: pumping, filtering, dams, purification, etc. It is very diversifying,” says Bertrand Lecourt, manager of Fidelity’s Water and Waste fund. As a result, volatility is lower for this type of asset than for other natural resources.
Investing in forest
There are two ways to invest in the forest: buy a plot of land or subscribe to shares in forestry groups (GF). In the second case, you benefit from an advantageous tax reduction of 18% on the amount invested, up to a limit of €50,000 for a single person (double for a couple), i.e. up to €9,000 in one go (subject to the global ceiling of tax niches at €10,000 per year).
Like any atypical investment, you may be dealing with a fictitious investment or a malicious intermediary, especially since this is a very specific market. The other problem is the return: is it an investment that is worth it, apart from its tax appeal? The wood, all species taken together, brings back between 2 and 3 % per annum, informs Stéphane van Huffel, cofounder of Net-investissement.
Investing in Gold
Many individuals buy gold bars or coins. However, this anti-crash solution par excellence does not generate any dividends. And storage costs are involved. If you are looking for a combination of yield and value, it is better to choose shares in mining companies. In recent years, the majors in the sector have succeeded in reducing their costs and thus improving their profitability. If the price of gold rises a little, these stocks could become investments to be followed very seriously. Even if we can only advise you to avoid mines in countries with high geopolitical risks. It is also tempting to invest in other minerals. In particular copper, which is largely linked to world growth. This metal, like other minerals (uranium, cobalt, diamonds), is also the subject of speculation that escapes private individuals. Their fate depends to a large extent on the Chinese economy. “If China coughs, metals catch a cold,” says Benjamin Louvet, commodity manager at OFI Asset Management. So let’s stay focused on gold.
Investing in Oil
Oil was formed in the earth’s subsurface several million years ago. On a human scale, oil is therefore a finite resource. Sooner or later, there will be no more oil on Earth. It remains to be seen when.
We can already observe that the discovery of new conventional crude oil deposits has been in free fall since the early 1970s. The vast majority of the world’s reserves are therefore already known and future discoveries will not change the situation. However, it is today’s discoveries that will ensure tomorrow’s production. In the early days of the oil industry, oil was pumped from very generous and shallow fields, so to put it graphically, all you had to do was “bend down to pick up the oil”. But the late 2000s marked a turning point in the industry’s history: the era of cheap oil is behind us. To continue to meet growing demand, it is now necessary to turn to unconventional oils.
Oil demand to grow in the medium term
There are countless uses for oil. Black gold fuels the vast majority of the 1.4 billion cars on the road, but it also produces the fertilizers and pesticides needed for modern agriculture, industrial lubricants, asphalt, plastics, nylon, adessives, and a host of everyday products.
There are many ways to invest in petroleum. The first is to invest in companies that have made it their industry (Total, GMO etc.). These companies pay dividends and see their shares increase every year. The second option is to buy turbos on oil. A turbo is a derivative product whose price depends on an underlying asset, in our case, oil. They are a little more difficult to understand than CFDs. The third way to invest in oil is to buy ETFs (Exchange Traded Funds). These are investment funds listed on the stock exchange whose objective is to replicate a stock index. Just as there are ETFs that replicate the CAC 40, there are ETFs that replicate the Brent or WTI oil stock market price. These are also called ETCs (Exchanged Traded Commodity).