Natural-resource stocks are white-knuckle investments, subject to wild, wealth-destroying swings from boom to bust. No wonder many professional investors shun them.
It’s also why energy producers and miners may be just what your portfolio needs right now, according to Jeremy Grantham, the widely followed investment guru at GMO LLC, the Boston-based money manager. “We believe the case for investing in resource equities is compelling,” write Mr. Grantham and his GMO colleague Lucas White in a new research paper.
In part, they’re enthusiastic precisely because so many investors have kicked resource stocks to the curb after the debacle of the past few years. The S&P 500, the benchmark U.S. index, has seen its exposure to energy and metal companies drop by more than half – from an average of 13 per cent in years past to around 5 per cent this summer.
Raw-materials producers are trading near historic lows, write the GMO duo. Based on measures such as dividend yield, price-to-book value and price to normalized earnings, resource stocks are about as cheap as they’ve ever been.
At similar points in the past, commodity producers have gone on to beat the broad market by nearly 7 per cent a year over the following five years, they calculate.
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