Why resources and energy make perfect sense in a diversified portfolio right now

Steve Anagnos
Steve Anagnos
Shaw Co-Head, Income Strategies
We invest primarily to protect the purchasing power of our money. Many investors lose sight of that fact and simply aim for the highest return, or the highest return per unit of risk.

Given that we think we are “late cycle” in terms of the underlying global economy, we think that inflation is the biggest risk facing investors. The problem with investing in late cycles is that asset values come under increasing pressure as interest rates start to move up – first to “normal” levels and then potentially to “tight” levels to slow down economic growth.

Under this scenario – which we have seen in every post war recession in the United States and – less frequently – in Australia, typical equities and bond portfolios do poorly as PE ratios contract, bond prices fall and earnings come under pressure – all due to rising interest rates. Our job as investment managers is to identify strategies and investment options that can help protect portfolios in this environment. 

Shaw and Partners analysis of all post war economic downturns highlights that Resources and Energy shares (along with the underlying commodities such as copper, gold, oil etc) perform exceptionally well in “late cycles”. As a result of this analysis – and considering the various outcomes to scenarios governing trade and China’s likely policy response, using the input of our highly credentialed and experienced research team, we have a very healthy overweight exposure to resources and energy stocks in our Large Cap Core portfolio.


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