Scientists are quite categorical when they say that the only way to contain global warming is to end our reliance on fossil fuels and, within the coming decades, completely eliminate our greenhouse gas (GHG) emissions. This is an unprecedented challenge that will require an energy transition on a scale we have never seen before.
For the transition to succeed we will need to deploy all the clean technologies available to us, and this deployment will have to be on a massive scale and immediate. Global warming must be brought under control within the next three decades, which will involve expanding our renewable energy capacity.
There is no magic form of energy out there and we cannot make electricity from sunshine or wind alone but rather by using a transformer that converts wind or solar energy into electricity. And these transformers have material properties; they are made from polymer fibers and metals. Therefore, demand for metals in the future should be on a whole new scale and have a lasting impact on metal prices. The French National Centre for Scientific Research (CNRS) estimates that we will extract as much metals in the next 35 years than since the start of humankind!
OFI Financial Investment – Energy Strategic Metals
A new solution to invest in metals
Based on this analysis and 10 years after the creation of its first metals fund, OFI Financial Investment – Precious Metals, OFI Asset Management launched OFI Financial Investment – Energy Strategic Metals on the 27th of January this year. The purpose of this passively managed index fund is to get exposed to the performance of the metals strategic to the energy transition according to the management team. They implement the same characteristics that made the success of the first fund: UCITS V, daily liquidity, no investments in mining companies stocks, therefore no exposure to the equity market, denominated in EUR but hedged against the USD, value based on settlement prices, so no bid/ask range.
The fund has an exposure to the performance of the following metals: 14% Copper, 14% Nickel, 12% Aluminum, 12% Silver, 12% Platinum, 12% Zinc, 8% Lead, 8% Palladium and 8% Gold.
The allocation is fixed and quarterly rebalanced but may change once a year after an investment committee, which may decide to modify the index composition the Fund is exposed to. The committee may in particular decide to add components to the index, to remove some, or to modify the weightings, within the limits set by the prospectus.
What to expect in the coming months and years?
2022 is a challenging year for metals. Investors clearly fear that the monetary tightening cycle will lead the global economy into a recession. This risk has impacted the anticipated demand for industrial metals. The rise in interest rates and the dollar also drove down asset prices, particularly those of raw materials. Therefore, over the last quarter all industrial metals fell, and precious metals also suffered.
Despite these short-term headwinds, the physical market remains tight, with inventories remaining at an all-time low on some of the industrial metals. The lack of recovery indicating that at this stage the drop in physical demand is not materializing enough to create a significant surplus. In the example of copper, the Chinese recovery plan deployed since this spring, its focus on the infrastructure sector, as well as the acceleration of the energy transition in the country, have created a surge in demand that more than compensates for the drop in demand due to the construction sector weakness. The correction would then be mainly related to a very defensive positioning of investors. Therefore, even an only marginal improvement in the economic situation would lead to supply constraints and would make the structural challenge of the transition resurfaces, thus causing a rebound in strategic metals prices. Diversification on this underlying then retains, more than ever, all its interest.
Moreover, on the long term, the mining and metals industry could offer investors a rare opportunity. The IMF published a white paper in October 2021 entitled “Energy Transition Metals” that accurately sums up the situation. It estimates that the energy transition will have a very significant impact on the prices of certain metals in the future. It projects that lithium, cobalt and nickel prices will jump several hundred percent over the coming years; the price of copper is seen increasing by about 60%. And these levels are expected to be reached by around 2030, i.e. in 8 years’ time.
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This is an advertorial intended solely for professional clients as defined in the Markets in Financial Instruments Directive. No information contained in this advertorial may be interpreted as having any contractual value. This advertorial is produced purely for illustrative purposes. It constitutes a presentation prepared and produced by OFI Asset Management based on sources that it considers reliable. The funds mentioned in this advertorial have been approved by the AMF and are authorized for distribution in France, Spain, Italy, Portugal, Germany, Austria and in other countries where the law authorizes this. Before making any investment, potential investors should verify whether they are legally entitled to subscribe for the fund in question. Potential subscribers must be provided with the relevant KIID before making any subscription. The operating rules, risk and reward profile, and fees relating to investments in a fund are set out in the fund’s KIID. The KIID and latest periodical reports are available on the website www.ofi-am.fr. OFI Asset Management may not be held liable for any decision made or not made based on information contained in this advertorial, or the use that may be made thereof by a third party. In the event that a fund is subject to a particular tax treatment, it should be noted that such treatment depends on the individual situation of each client and may be subject to change in the future.