Natural Resources Background & Investment Strategy April 26, 2011
What’s a Natural Resource? Something you FIND…not MAKE. Something you NEED…not WANT. 2
What do we use them for? Natural resources are used to… Build things 3
What do we use them for? 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 4
What do we use them for? 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
What do we use them for? 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 6
What do we use them for? 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 7
What do we use them for? 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 8
What do we use them for? 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 9
What do we use them for? 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 10
What do we use them for? 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 11
Types of Natural Resources 12
Types of Natural Resources 13
Types of Natural Resources 14
Types of Natural Resources 15
Types of Natural Resources 16
Where are they? 17
Power & Energy 18
Basic Materials / Precious Metals 19
Food & Agriculture 20
Investment Characteristics Natural resources generally… act as an inflation hedge 21
Investment Characteristics Natural resources generally… act as an inflation hedge act as a portfolio diversifier are highly volatile 22
Investment Characteristics Natural resources generally… act as an inflation hedge act as a portfolio diversifier are highly volatile 23
Investment Options Commodities Direct exposure to the underlying resource Investor Natural Resource Commodities vs. Equities 24
Investment Options Commodities Direct exposure to the underlying resource Can be a physical holding… Commodities vs. Equities 25
Investment Options Commodities Direct exposure to the underlying resource Can be a physical holding… or a derivative investment Commodities vs. Equities 26
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… 27
Derivative Investments Leveraged Commodity Futures are… 28
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 29
Natural Resource Equities Equities Own shares of a company 30
Natural Resource Equities Equities Own shares of a company Can be directly owned or through funds or ETFs 31
Natural Resource Equities Equities Own shares of a company Can be directly owned or through funds or ETFs Traded on standard exchanges 32
Natural Resource Equities 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 33
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 34
In Conclusion Natural Resources are… …to be bought and SOLD, not bought and HELD 35
In Conclusion Natural resources don’t make money over time. 36
In Conclusion Natural Resources are… …to be bought and SOLD, not bought and HELD …dangerously volatile 37
In Conclusion 38
In Conclusion 39
In Conclusion Natural Resources are… …to be bought and SOLD, not bought and HELD …dangerously volatile …irrational 40
In Conclusion 41
In Conclusion Natural Resource investments are… …to be bought and SOLD, not bought and HELD …dangerously volatile …irrational …complicated 42
In Conclusion 43
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 44
Natural Resources Background & Investment Strategy April 26, 2011