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Trends Watch: Natural Resources

May 21, 2020

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Matt Geiger, Managing Partner, MJG Capital Fund, LP.

What is your outlook for alternative investments, more specifically natural resources?

For investors with longer-term time horizons and a tolerance for volatility, the set up in natural resources is compelling. It is one of the few asset classes that did not reflate in the twelve years between the global financial crisis (GFC) and the ongoing COVID-19 crisis. From a historical perspective, natural resources are under-owned and as cheap as they’ve been relative to equities since the early 1970s. As for alternative investments more generally, I do think the COVID-19 crisis marks the beginning of the end of the paradigm we have been living in since the GFC. This paradigm has favored growth over value, passive over active, and the U.S. over the rest of the world. When the paradigm shifts, it will be to the benefit of astute active managers employing niche strategies in non U.S.-centric investments.

What are the greatest opportunities you see and why?

In the natural resource sphere, high-quality gold and uranium equities should do very well over the coming couple of years. These two yellow metals are unique in that we can expect demand to either stay flat or increase in this post COVID-19 world. We have seen dramatic supply cuts across the commodity space due to COVID-19-related disruptions (including for operating gold and uranium mines); however, most all other commodities are seeing this supply cut negated or even outweighed by slackened demand. Not so for gold and uranium. There has been a sharp bounce in the prices of both metals and the associated mining equities in the weeks since the mid-March bottom, but opportunity remains for those able to identify the right management teams and assets to back.

What are the greatest challenges you face and why?

The greatest challenge is that we are investing exclusively in an asset class that is negatively correlated to a strengthening U.S. Dollar. And sure enough, the U.S. Dollar has been strong for years now and there is a compelling case to be made that this can continue for some time. The good news is that precious metals have proven themselves largely impervious to a strengthening U.S. Dollar over the past 12-18 months and I expect this to continue.

What keeps you up at night?

I am concerned that the long-term trajectory of Fed policy will continue to exacerbate wealth inequality within the U.S. and result in increased populism on both sides of the ideological spectrum. The Fed’s mandate now seems to be to eliminate the business cycle entirely, which is damaging to capitalism and society on a number of levels. Rather than the Fed being required to blast seemingly unlimited liquidity into the system whenever there is concern of a recession, I would much prefer a system where there are ample safety nets in place so we can weather natural business cycles without mass suffering and without having to bail out the economy each time.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.

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Elana Margulies-Snyderman

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.

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