Inside Active by Bloomberg IntelligenceOut of the 31 global stocks found in four or more BI themes, the ones exposed to physical environment issues have outperformed tech stocks dramatically so far this year. In this episode of Inside Active, host David Cohne, mutual fund and active management analyst with Bloomberg Intelligence, along with co-host Breanne Dougherty, head of thematic strategy at BI, spoke with Albert Chu, a portfolio manager with the Man Group and manager for the American Beacon GLG Natural Resources ETF (MGNR). They discussed dispersion in commodities and why falling interest rates have historically been positive for commodity prices. They also spoke about the likelihood of a global restocking cycle amid rate cuts and a stimulus environment in China, and which subsectors Chu is bullish on.
Welcome to Inside Active, a podcast about active managers that goes beyond sound bites and headlines and looks deeper into their processes, challenges, and philosophies and security selection. I'm David cone, I, lead mutual fund and active Research at Bloomberg Intelligence. Today my co host is Brian Dherty, head of Thematic Strategy at Bloomberg Intelligence. Bri, thank you for joining me today.
Thanks for having me David. This is one of my favorite things to do when it gets put on my calendar, so always a pleasure.
So one of the things I wanted to talk to you about is so you have about thirty three themes and the bi Thematic Strategy data set, you know, twenty three hundred unique entities. And we've heard a lot about big tech themes this year AI Modern Defense, but I noticed your multi theme analysis calls particular at tension to the physical environment ones. Can you tell us more about that?
Yeah, you've got that absolutely correct. So I've spent a lot of my twenty twenty four talking tech, which is interesting for somebody who's spent nearly twenty years in energy.
But anyways, it is what it is. We do have thirty three.
Themes what we have done, and the energy themes, So those physical environment themes which hold a lot of different energy themes such as hydrogen, biofuels, nuclear CCUS, decentralized energy. There's twelve themes in that category. In general, those themes haven't been at the top of the leaderboard this year. Our top of the leaderboard has been pretty dominated, especially as of laid off the last couple of weeks, with some future finance and frontier tech. But what is interesting is we have this unique cohort of thirty one global stocks that happen to be names that are in four or more BI themes. So again we've got thirty three themes over twenty three hundred Union equities. There's thirty one stocks within that data set that are in four or more BI themes, which is what we call them our high thematic breadth or high theme profile names. In those thirty one names, the ones that are physical environment names, so we're predominantly the themes that they're exposed to. Our physical environment themes have outperformed those tech names dramatically, so they've returned like ninety nine percent year to date versus the tech names have returned thirty percent. So we've got ten physical environment multi theme names. Siemens Energy top of that list. It's performance this year outstanding. But we've also got Ihi, Mitsubishi Heavy Industries, Kawasaki, Angie, Honeywell, We've got a few other interesting names in there. And as a group, those physical environment multi theme names have just been gangbusters this year when compared to these accelerating tech names, which those accelerating tech names, to be clear, include the likes of Apple, Microsoft, Navidia, So it's not like they don't they don't have a lot of you know, big big power behind them. So the fact that we're seeing that out performance has really been tremendous for us, and again brings us to our conversation today where I know we're talking natural resources and energy focused themes, and so I'm interested to delve into that conversation.
Oh it's great, So I think, actually this is a great time to welcome our guest, Albert Chu to the podcast. Al is a portfolio manager at Man GLG, where he focuses on natural resource strategies. He's actually the portfolio manager for the American Beacon GLG natural Resources ETF, which as a ticker MG and R actually a fun we really wanted to talk about today. So Al, thank you for joining us.
Hi David, thank you for having me.
So i'd actually like to begin by hearing how you got your start in the investment industry.
Oh, that was a long, long time ago. It started from a book I was doing my getting into my B school internship and I like to read a lot, and one of the books I was reading that time was Hot Commodities Jim Rogers, the the SOLS partner at Quantum, and just the book really resonated with me, talking about the undersupply and the development that's the needs that's coming out. And then I remember at my internship, you know, they put a list of different sectors and analysts looking for summer associate and at the bottom of the list was Energy and when I signed up for it, they said it's yours because nobody asked for it. I think Oil was treating about thirty dollars at that point, and they were like, yeah, out of an interim class of one hundred, you're the only guy that asked for Energy. And you know, right time, the right place. So I asked for you know, the Energy group. And then so I've always been investing in commodities ever since then. So it's a book that's great.
So I actually we wanted to talk specifically about m m g R. You know, as I mentioned the American Beacon GLG Natural Resources ETF. Can you walk us through the investment process for that fund? You know how securities are selected?
Sure? When when we when I think about the investment process in the commodities world, I always like to take a step back, right, let's tick the sector. And you can do this from a numerous perspective, right from the equities or from the futures. Take the index right, and you take it one year back, five year back, ten year back, good market, bad market, It really doesn't matter. It still holds true. And you chop it right in half the top fifty percent tileent return versus the bottom fifty percent tile in return. That that dispersion on average is between forty five to fifty percent. Now, I think the average. You know, a common investor tends to think of commodities as one. It's oh, it's a beta play and it's a correlation of one. But that is just not the case. Right if you look at even just this year alone, right, to the biggest commodities, oil versus gold. Right, goal is up between twenty five to thirty percent this year oil again, integrald to to our everyday use an economy is down this year, right and every year. You can pretty much go through and look at that, you know, natural gas the last several years versus iron ore. There's huge dispersion now within and this is actually one of the widest dispersion within all the SMP sectors right now. Within this dispersion, this the wideness of this really implies that there's a lot of alpha to be generated, right, that it doesn't all go up and down together. And it's not just a beta play right there. They're very atosyncratic supplying demand drivers, and and that that simple premise drives the entire investment process. Right, is that this is not a passive product. We don't you know, track and have to maintain a certain amount of Well, this is what the index does, so we have to do this. This is purely a look, we think this commodity is going to go into a bull cycle. This one is not you want to be positioned here versus somewhere else. It doesn't we don't have to be in every single commodity or every commodity companies. Now this is also equity products, so it's the commodity companies. And I think there's actually a natural advantages to to having the equities as well. But that's what drives it, right, It's a research first, back by you know, demand group. We have a lot of data and technology that we apply, but it's a human process, right, very fundamentally driven picking the best companies within the best commodity school.
Now, I kind of want to go back to you know, you mentioned dispersion. It's something I've looked at quite a bit, especially with stocks. What exactly are you measuring? You looking at you know, are you focusing on a commodity and looking at the top in bottom and then you know, looking at the difference.
Oh that's a good question. No, it's actually if if the the think of the research process as having three pillars, right, the first pillar the three levers of alpha, right, the first real real, the filter or the subset is understanding the commodity. Right where are we in the commodity cycle? If the commodity is about to go enter into a prolonged downturn, I'm not picking the best stock in that sector. I'm saying, if something is going to if the commodity is going to underperform, we're going to go down. Do I need to be in any of these names or in my investors right? My answer is no, because I'm an active product, I don't need to be in any bit right versus a Oh way, if I think of commodity is going up, do I need to be well I only buy one or two names. No, in that case, I want to buy as big of a basket. You know that that within my broader populiar construction will allow. Right, there's a there's always a bull and bear market gone somewhere. So you want to be very selective when what you're buying. You know, the old real estate saying, oh, you want to buy the worst house in a good you know block. The way I look at it is, if it's a bad block, you don't want to buy any house you know, not a good house, not a bad house. And if it's a good block, you want to buy all the houses right, good bad. You want to get as many exposure to that block. So that that's the general framework.
I think music to my ears. So I was in commodities for a very long time, natural gas specifically, So I always appreciate when someone gives a shout out to natural gas, which you did, as as you're looking at this, and I'm really interested in US commodity's viewpoint being really at the core foundational aspect of your investment process. When I'm looking at your current you know, holdings, how what is your current commodities view and how has that translated into the current equities that you've got in there, or how are you feeling generally about the commodity's environment right now?
Right, I think it's it's actually very very attractive. Right if we look at if we take a step back and we look at what's going on in the world. You know, the US, the biggest economy. We just had our first rate cut. You know, regardless of the duration or magnitude, we are in a rate cut cycle. If you look at the past, you know, last twenty years, the past three rate cut cycles. Thirty six months after the first rate cut, Commodities, copper, gold, a lot of the basic inputs tend to do very very well. There's actually never really been a sustained period where you have a rate cut cycle and then two three years later, you know, the commodities didn't participate, and then you've thrown to that a red sweep on the government where it's very pro growth. You're setting up fairly strongly on that. But then if you look at the second biggest economy in the world China, now they went through a four year downturn right first with COVID, trade wars and a property bus there, but again from the from the top down economy over the last month or two coordinated fiscal monetary stimulus. Right now, there are a lot of secular issues in China, right population, demographics, bomb, credit, real estate. But again, when the government is stimulating or when they have pulled that switch to stimulate, it's a pretty powerful tailwind. And even in Europe, you know, hopefully the war and physical altercations like subsiding, and you know, if you're start thinking about twenty twenty five and twenty six, they will start getting a wave of LNG so power will get cheaper for Europe as well. So the three big economies in the world over the next several years are actually getting a lot of tailwind. You know, with the markets that basically all time highs, something is being mispriced and This isn't a value comment or a growth comment, right, It is just that you know, the markets is baking in. Oh, things are pretty okay, yet they're also baking in Well, we're going to have a recovery in global economy, but not in commodities, and honestly, that's just not gonna be the case. Right. A lot of times people forget that you can't really have economic recoveries without a restopping cycle, and that's what we've been seeing. We look at manufacturing PMI obviously dropped very, very sharply in twenty twenty, had a nice rally in twenty twenty one, but global manufacturing PMI has been coming down pretty much every quarter since twenty twenty one. Every CEO out there have been anticipating while there's a shutdown in China, there's going there's a great high cycle. Europe is still at war. You don't want to be overly investing in in manufacturing in the hard stuff, so we've been de stopping. And that's the interesting thing is that for the past two three years, CEOs, despite your corporate spreads bring very health, the corporate profits and morgins being very strong, is that they have been recycling the money back into dividends and buybacks and not rebuilding, not restalking. But again, is that if we started looking in twenty twenty five a rate cut cycle and a coordinated stimulus environment in China. Is that it's in my mind at the likelihood of a global restalking cycle is fairly high or being severely underestimated. In that case, a lot of the things in my sector, the stuff if you if you, if you call it, it's understated how much stuff we will need.
So and so you guys look at natural resources and natural resources related equities, are they're currently so in that I'm assuming obviously traditional energy in their metals, mining, the usual suspects, possibly even some new energy. Can you walk us through maybe some of those sub industries that you guys are particularly focus on, or even sub industries that you're veering away from right now at this moment with this general view that you do think that there's going to be a broad uplift and demand across the board for natural resources.
Absolutely, and I think that's really important to highlight too, right that things don't participate with the correlation of one even if there's a strong macro trend. You know, particular subsectors or areas that we're very you know, bullish on. You know, we continue to like copper. Copper is a unique right, It's a very cyclical metal, meaning you know, it does well in economic upturns and poorly in downturns. But there's also a very strong structural issue to the demands of it, right in terms of hyper scalers, in terms of energy transition, you just cannot electrify without copper. If you look at the supply response, you know, copper minds are not shell wells, right, you can't bring it on in thirty days. Oftentimes it takes decade decade and a half to bring on these megaminds. So we know that you know, supply is going to get increasingly difficult or you need higher and higher prices to bring forth the volumes that we need for one a basic economic inflection and manufacturing PMI, And two it's just renewables, renewables and power. Right. If we think about holistically, power is energy, right, Energy is which is oil or coal, natural gas is electricity, it's it's power, it is renewables. So we like to think holistically through that whole value and supply chain so that's one commodity that we still really like. Another one that we get basic chemicals the tip of the spirit. Right, you really cannot go into manufacturing restock cycle without the basic inputs simple things container boards. Right, If you go into a manufacturing cycle, you cannot ship it without container boards. It's it's actually one of the more obscure commodities that really does well and in an economic upturn, we also like really like gold and silver still. It's one of those things where I think there's been break consolidation with with a stronger dollar. But if we look at a lot of the longer term trends, central banks trying to diversify that divers fly away from US dollar. Then you have geopolitical tensions and just escalated government spending. These are not reversing any time school anytime soon. Political fragmentation, I think it's a mega trend that's going to be with us for decades to come. So I think physical and paper gold and silver is very attractive, continue to be very attractive. And then one of the points we previously touched on is that it might take a look at the next several years things that potentially will be in a shorter or tighter supply will be powered, particularly in the US, so we have we're invested in that theme as well. One of the names you mentioned earlier is one of our larger holdings. It's across the board, right, equipment, the grid, battery storage, these are all themes that it's going to be very integral. It's going to be if we look back at twenty years from now, the energy picture is going to look very different from the past twenty years. The next twenty years is going to look very different. So where we're invested in those Some of the areas where you know, probably a little bit more cauti or you know, a little bit more wary, will be something like agriculture. Agriculture demand wise, of course, you know we don't really eat less. Demand is fine, it really is. Just the yields have been incredibly strong for the last several years, right, Planting conditions have been great. You know Russia there was there was actually not that much physical disruptions. So we're looking at very very healthy yields, you know, with all the soft commodities, and then you know, energy defining it more on the on the oil side, right, probably a little bit more cautient there Again, demand is is fine, but you know in certain countries we are starting to see at the tip of the demand certainly sees some substitution, meaning in terms of ev and China or compress natural gas, they are starting to take away a little bit of market share. So you're starting to see that that transition is happening in certain regions faster than others. But on on that side, mainly it's the supply, right if we look at how much capacity OPEC really is holding back on the market right now, and these are this is not capacity that they really need to develop. It's there ready. And then you think about just the logistical de bottlenecking in the US and the premium basin it's been happening. There's actually not really a shortage of oil. I think a lot of oil bowls will point it. Well, look at how low inventory is, and I think that's just the function of if the market is perceived to be that well supplied, you don't need to carry a lot of inventory, right, So I think it's a false signal. But that's something that again I don't belong in the camp where I think oil demand or oil is going to fall off the cliff and we've completely transitioned to a renewable economy. We're going to need oil for years and years to come. It's going to be inteval. But right now the balance looks like we have enough.
You mentioned a couple of things that I can't help up myself. Help myself, but pounce on there because specifically your conversation around oil and then you mentioned shale a.
Little earlier, and.
That was just such a huge disruption to the supply dynamics of both natural gas and oil. As you mentioned obviously, so much of it being in the US. When you look at and you flagged power generation as being a core theme that you're looking at over the near terms, you continued growth and need for power generation. Do you see any of these natural resources related exposures really ripe for that same type of disruption that happened what shale, what cracking that shale technology technology did for oil and natural gas. Do you see anything that you feel is at the precipice over the next five years that that could get cracked and then we're in a different regime with respect to some of these natural resources.
That's a great question. Yeah, I mean, I'm not one of the Malthusians where we're running out of commodities and technology. You know, I believe in technology.
I believe in technology too. It's amazing what it's done for us in the post.
But the punch line for technology is price right. Technology doesn't get developed without price even. Lets you say something like copper that we mentioned earlier, Now there are competing technologies for copper, right, you can actually get production from lower grades. Our biggest copper resource is actually our trash pile. Right, Because unlike energy, every kind of copper, every producer, every problem with copper produce is theoretically still somewhere on Earth. It's not a consumable right, once we figured out the circular economy for it, theoretically we have enough copper that will last whatever economic position or energy transition that we can think of. But again, you need price right, price calves, you know, basically all cycles. And the fortunate and fortunate answer is that it's not a four dollars a pound, right, A lot of these technology you really need higher recycling is actually very uh it's it's a costly thing to do, right. It's hard to recycle profitably at four dollars, So you need materially higher price. So and that that's a lot of different things too, right, you know things that we were looking at that may be at the precipice of new technology. Lithium is a perfect example. Right. One of the funny things about lithium is that you know you need cheat lithium. Right, If you build a giga factory and you can't source lithium or it's too high, like like a several years ago where oh you couldn't get cobalt, well, that will derail the whole demand profile of it. Right. So there, I think you will actually get look for more supply and more technology, different forms of extraction, different resources that would actually bring down the supply curve so that the more you need something and then the higher price that the price spikes is actually you typically the precipice will bringing on new technology.
Right, somebody's gonna arbit right, Yeah, somebody's gonna figure it.
I mean if we saw it with shale.
I mean people forget this, but back in two thousand and five, two thousand and six natural gas prices, we're running fourteen dollars perm BTU, right, that's and so with those types of prices, they could drive into the technology to crack that shale code, and then that's what drove it. And I look at things like daily right, we know Exxon's now you know, picked up a company around direct litheum extraction. I look at what they're trying to do around nuclear. I'm quite interested if anybody can crack to you a thermal. I think there's just as you say, there's just as history has proven to us, innovation can lead to some very significant disruption when it comes to natural resources exposed. Could use a natural resource exposed the absolutely yeah.
And I think that's the reason you need to be active as well. Right. You know, people ask, well, well, what commodities do you like, and I say, oh, I like this and that, but this has something your own for like twenty years. Well, no, The whole point of active management is that in twenty years, the market will figure it out, right, it will, you know, prices will rise, capital capital investments will come in, you know, human capital will come in, Technological capital will come in, and it will solve that. Right, And the whole point is that it comes in waves, and that's how you capitalize on it by being active investors. Now, one of the interesting things that I've always thought and some people may disagree, is that commodity cycles aren't ended because of demand. Right. We look at demand from humanity since the beginning time we eat more, drive more, build more, consumer everything is more. Right. There are very few moments where there may be blips. Right. Economic blits are where we consume a little bit less. It's the supply that really the displaces the commodity cycles, right. I mean, even if you look at oil demand, believe it or not, has been pretty constant and increasing. Same thing with metals and mining, steel, food demand. Right, These short term gyrations in cycles are caused a lot by supply. So it's something that my team and I really focus on. Right, it's you know, count the pipelines, count the minds, count detractors, count count the corn that that's where a lot of the alpha is generated from.
Yeah, and look at those costs of supplied curves and how they're either climbing or falling. Yeah, it's so so true.
So I wanted to jump in and ask a slightly different question. You know, the portfolio is a little bit concentrated. I think there's about forty five securities in it. How do you handle concentration risk.
Oh that's yeah, that's really important. So my background is I grew up in the hedgewind world and along short equity at various various places, and you know every single place is the same. Right. That's how they teach their analysts and their PM is that it's not oh well, this is how you make money. The first lesson is always how do you not lose money? Right? How do you manage risk? So I do run a fairly concentrated portfolio because it's alpha, right. I don't need to be in every single commodity, so run typically between forty to fifty names. Now, there are there ways, you know where you want to lower the risk profile. One is liquidity, right, I mainly focus on mid to large capital cap companies and then mainly focus on developed markets meaning OECD, US, Canada, Australia, Western Europe. You know that my companies have enough operating risk in terms of the minds and where they're based on. I shouldn't be taking extra layer of sovereign risk by by economic listings. Right. I tend to prefer WESTERNN listed companies because their asset based are you know, in various locations already. And then in terms of just diversification. We look at the three main commodity sectors, right, energy slash, power, metal and materials and agriculture size food. Each sector, we don't let it get over two thirdies of the fund. So you won't wake up like, oh it's just an energy fund, or you wake up and so it's just metals and mining. Now within the subsector, let's just say within metals, like I like copper copper, I won't let the subsector get over twenty five percent of the fund again any given year, it should be various themes and thesis is that that makes the returns not just all eggs in one basket and then on an individual position basis five percent. I don't let any single stop get over meaningful over five percent. It's it's always dial back the risks. So risk management and portfolio construction is one of the top things on my mind. Right. It's not just oh this is a great theme, we should all just pop you buy everything in there, but you have to balance it with proper risk management.
I think it's I was going to ask about the concentration to US and Canada names, but you answered it in there with respect to some of your managing some of that potential risk the specific as it relates to extraction companies, which I think is really interesting about the fund.
I know it's early to.
Tell because you guys only launched in February and you've had good performance here, But how how much turnover do you think you'd be comfortable with on any of the rebalances? Is it something Obviously it's an active strategy, so you do have capacity to do decent turnover. Is that a style that you're thinking about or do you think that these are you mentioned, you know, kind of like longer term thoughts that you have within with it.
From the funds perspective.
We target around a sixty to eighty percent turnover because if you think about commodity cycles, right, you don't want to overstay your welcome right Perfectly commodity themes work. Let's just say call it two to three years. Some some are going to be longer, like a copper cycle will take longer because the supply is so hard to bring on, right, But something like can compare that to something like a agriculture cycle, right, like chicken protein. That's one of the things that we had exposure to at launch. You know, A typical growing cycle for for protein is for chicken protein sixty nine months, so it can adjust fairly quickly. Right, So depending on the commodity, you know, you will have different holding periods, and you know, the market is fairly efficient, they will catch on the theme. So at a certain point of the price reflects. You know, whatever my upside is, you know, it's time to to think about something else. But it's typically sixty to eighty percent. A lot of it would be just the different cycles playing out at different point. Another one, and I'm very open about admitting this, is that you know, in this line of business is that one of the most important things is knowing when you're wrong. You know, not that I want to be wrong often and know a lot, but the links of the business is that, you know, we have to be able to deal with mistakes. So there will be turnover some mistakes, right, you know, we pick the right theme but the wrong stock, or we pick the we misstep on the whole tam completely. We need to get out or economic conditions, economic news. Something changes and you know, we don't want to sit there and say now we're always going to be right. Things change and we have to react to it. And that's what a data driven process or fundamentally driven and data driven process can really help with. Right, is that we don't anchor, and that's a very big psychological hindrance. We anchor like, oh, we hate to be wrong, you know. I tend to think of successes and not one idea or one theme. It's the overall fund right. And if we don't have the ability to self criticize or self analyze when we're wrong and get out that that's dangerous and that that's also going to be a driver of turnover. I hope that I wish that's not the case, but unfortunately that will.
I have to say, I find that really refreshing. I think it's especially when it comes to commodities that sometimes is one of the biggest challenges when you look at or when you follow certain funds. Is it does seem to be that there is some hesitancy in sort of people just saying, oh, okay, it's not playing out like that. Can we wait for the next cycle or is it a time to reassess the entire viewpoint. So I think that's quite refreshing and interesting to hear.
And so you know, you already covered this a little bit talking about why you know, active is is a better approach when it comes to investing in natural resources. So I guess, you know, my follow up is to you know, is is that part of it, you know, being able to sell you know, a position that you know you think might not do well going forward.
That definitely I think the you know, on the byaside, I think there's a almost an over emphasis on how I got into this at a great point, look how how well I did on this? Where if we think about successful you know, uh, a successful position is it is half of it is your entry where you bought that, how much you bought it, that, but just as equally important as when you exit it, right, when did you sell and did you how much did you sell? It's the entry and exit that's that's that's equally important. And I think that that's one of the things that I'm very cognitive and try to work on again, having a lot of technology and having a lot of data, you know, with a man group behind you, that that's very important. You know, we have a big team of data scientists that helps simplistically, when when I look at my process, I always like to tell people, you know, there's only two things I look at, right, I look at supply and I look at demand. Now, within each of those there are probably hundreds and thousands of data points that you know, we we comb through to get the mosaic of the picture of where it is right. But simplistically is when supply and demand, when that gap, when that balance is widening, you want to buy right regardless of what the sentiment is. People may hate this commodity, but if it's widening, you want to buy. Then that the prices will be at. If it's narrow you want to sell right real regardless of it's so cheap, but oh we need so much of it. If it's narrowing, you want to sell. You know, a great example would be natural gas insistens we're talking about. That would be you know, when Russia invaded Ukraine, natural gas spike and into that fall, you know, natural gas was eight nine dollars by men BTU. And there's a view that I can go to twenty over the winter because in Europe that it's going to get very very tight there. But if you look at the underlying supplying demand, was that you see LERG cargo ships turning away from Asia going to Europe right because China is still in the shutdown and the price arms are sending, you want to send LERG to Europe, not not not to Asia. So you see you're see more supply from that perspective. On the demand side, you're seeing you hot water being turned off in public restrooms, You're seeing refiners, steel mills, fertilizer plants being shut down. So you see the supplying demand gap really narrowing. Now, there are still factors where you can drive the upside, something like weather, but the unfortunate thing is that nobody can really predict weather. And and what happened was exactly when turned out, was that you had one of the warmest winders in Europe and supply came in and demands stay pretty low, and then you had natural gas, you know, giving up a lot of the games from earlier in the year. Now, the narrative that going into that was like, oh boy, it's going to be nuclear winter. It's going to be really bad. You're going to have people freezing the dev and natural gas prices spiking. Another leg that could have happened, but having maybe a global view of different data points and supplying demand, that's all it really is. And when it's narrowing time to take offers. It doesn't matter how cheap it is. Sightly, you take the time to take off the exposure.
And that's a beauty of commodities, right is there's lots of data, lots of real time data available nowadays. I mean when you think of just the amount of data that is out there tracking cargoes and like intricate demand in some of these countries related to the commodity use. Not to mention the supply, it's amazing over the last ten years, I would say how much that's.
I don't have to give a prop to to my host. I mean, Bloomberg has been I am this for so long and I'm always surprised by how much data and how much uh resources I continue flying from you guys. Great job, I mean, it makes my job really a lot easier because in a centralized platform that's easy to use. But yeah, it did so much data out there.
I didn't even do that on purpose.
No, No, that was that was.
That was a great plug. But actually, speaking of data, you know, I do have a question. So natural resources typically perform well during periods of high inflation. Does your approach change at all. You know, when you know, during environments with lower inflation.
It does it does? It really depends on there there's no generic playbook where I'm like, Okay, inflation you buy X, and the inflation you buy. But I think a lot of if we step back and think about the environments where natural resources and commodities do well, and one is obviously inflation, right, the seventies inflation cycle, great example, you know, last several years with the COVID induced inflation, right, commodities was one of the few areas you can play offensive in an inflationary environment. But there's another big economic kind of situation where commodities do really well, and that's economic inflections. If you look at two thousands, China coming in from a rural economy to modernizing industrial economy really just you know, created that that original supercycle. Right, if we fast forward to now and the things we allude to earlier, right, we've been in a you know, two three years, the stalking cycle already into a beginning of a rate cut cycle in a very government that's very pro build and grow and and China that is in the process of trothing is that you are reaching an economic kind of an inflection as well. Well. And those in those situations, commodities tend to do very well. Now, different commodities, right that what I said about you know, having a a there's no standard playbook. Right. If we look at the two thousands, iron ore was a great commodity, right, it is China coming in, or they didn't have any buildings, right, or you had to really go into a building cycle. Now if you look at the cycle now, is that Well, if China's going to grow again, why won't it be you know, why wouldn't iron or be the best one? Well, and this one is that they're trying to not create another real estate bubble, right. They want to hold that back. Now there will be real estate stimulus and the support policies, but they don't want to build you know, more ghost towns, you know, so there will be different you know. But on the other hand, they might be saying, hey, you know, right than the export economy or export led GDP growth, we want more internal consumption growth. Now, internal consumption versus housing property boom? What are the commodity differences? So there are nuances again that and that's what drives a dispersion, right, is that people then think well, it's just all metals, it's just all going to do well, that's not the case. Look at the actual supply, look at the actual demand, and dig deeper into that, get more granular, and then that's when you can really tease out while we think this is going to be the olperformer. So there's there's no real standard playbook. But in each case is the rhythm is the same supply and demand, but the actual drivers will be different.
So actually, just have one more question, you know, I do like to ask our guests, you know, a kind of a self reflective question. So what advice would you give your younger self just starting in the industry.
That's a great question, I think if I if I have a from an investing perspective, we'll be just honestly, keep a big picture in your mind, right that the micro rarely works without the macro. Uh, you know, read more, talk to more different kinds of people, right, macro econgress people in the streets. I have a wider view of everything.
Right.
Sometimes it's you know, when we invest with we tend to overly just concentrate on what we're looking at, you know, in the tank case and thank hues and the management team, and we don't step back enough. And I think second one, honestly would be in a in a longer term basis, always be optimistic. Right, we look at all the most of the billionaires in the world. They didn't get to where they are by being pessimistic. It's that they have to be optimistic about something. And I think that's where the actual true wealth is really created. Right, in a longer term, don't don't bet against humanity and and and being optimistic and that we will it does grow. So that's good advice.
You're happy you read Hawk Commodities. Then it was a good decision.
I hope that.
Well. We enjoyed this out. Thank you again for joining us great thanks for having me and Bri. Thanks again for serving as my co host.
Always a pleasure, David, Thank you and thanks.
So until our next episode, this is David Cone with Inside.
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