Investing in Resources
Rising demand = positive outlook
What are "resources"?
It's a broad term often used to describe the energy and materials sectors. The resources sector constitutes one of the broadest and most diverse parts of the market and encompasses more than 30 sub-sectors including oil, gold, mining and forestry.
Resource stocks represent over 40% of the Canadian market - a
key reason why we've been among
the world's best-performing stock markets over the past 5 years.
Traditionally, investors have viewed resources as cyclical
sectors driven by short-term supply and demand. Today, however,
our outlook is that a period of escalating global demand and lagging
supply (see chart below) - is making resources a sustainable
opportunity for growth-oriented investors with a long-term outlook.
Where is the increasing demand for resources coming from?
In recent years, Brazil, Russia, India and China (BRIC countries)
have been major consumers of resources to power their development.
Record prices for commodities like oil, steel, aluminum and copper
have been the result.
And demographics indicate that the demand for resources in these
countries will only increase. At the end of 2005, the four BRIC countries
accounted for more than 40% of the
world's population. By 2050, it's estimated that
their total GDP will exceed that of today's most industrialized nations.
In addition, the developing economies in the BRIC nations are
driving increasing urbanization. This movement will require increased
infrastructure - power stations, bridges, roads, etc. - increasing the
demand for commodities like oil, aluminum and steel.
Why are supplies of resources lagging?
Throughout the 1980s and 1990s, commodity prices were caught
in a severe bear market. Many companies did not invest in production - and
when, in recent years, demand began to pick up, they were not prepared
for it. Worse, resource projects typically require several years to
come online. Two decades of under-investment in exploration and development
simply cannot be rectified quickly.
The oil market gives us a vivid example:
Over the last 5 years, global demand has pushed oil prices up by
300% - but supply has not kept up. The fact that companies have not been
able to capitalize on these higher prices by bringing more oil to market
demonstrates the difficulties they face in replenishing their supplies.
Resources: A global opportunity
Canada's resource companies are among the world's best and most
stable. This has made them attractive acquisitions for foreign players
in recent years. But there are other strong resource
companies around the world - so it's key for Canadian
investors not to restrict their resource exposure to Canada.
How can you take advantage of growth opportunities within resources?
While resources are volatile - and cyclical, up-and-down movements
will continue within the larger upward trend - they offer the
potential for growth over the long term within a
well-diversified portfolio.
RBC Asset Management is one of Canada's most recognized names
when it comes to managing resource funds. Combined, our fund
managers have more than 40 years of experience researching and
analyzing the resources sector. Their diverse backgrounds and
knowledge provide keen insights into emerging companies, plus
early access to opportunities not yet discovered by the marketplace.
For exposure to resource companies, consider the
RBC Global Resources Fund,
the RBC Global Energy Fund
and the RBC Global Precious Metals Fund.
Talk to an advisor
today about how resources can fit within your investment plan.
