Not all commodities are created equal
In this presentation, Steve Johnson, Chief Investment Officer at Forager Funds, discusses why his fund has some exposure to oil, but is avoiding iron ore. While commodities have moved in synch during the ‘super cycle’, this is not expected to continue over the next 5 - 10 years. The key to this divergence is asset lives. Many oil and gas wells are expected to run dry over the next few years, and without higher prices, new wells will not be drilled to fill the supply gap. On the other hand, iron ore assets are not expected to require additional investment until 2030, so as long as the large, low-cost players are making money on a cash basis, supply will not fall. “If you start seeing BHP, Rio, Vale, compete with each other for market share, then you could see a lot lower iron ore price than you see today”. For the commodities discussion start from 1:57 in the video below.
2 stocks mentioned
Steve began Forager Funds in 2009, and now manages approximately $470m across two funds. Offering a listed Australian Shares Fund (FOR) and an unlisted International Shares Fund, Steve focuses on long-term investing in undervalued companies.