Allocations to unconventional sectors can deliver attractive returns, says Vontobel
The current low growth environment has forced investors to become more imaginative in their search for yield, Vontobel says.
Unconventional resource-sector companies within the energy sector, agriculture and advanced-materials technologies have shown considerable promise and could therefore provide the key to unlocking attractive investment potential.
The picture today
It is no secret that conventional energy and agricultural sectors have, and will continue to, face difficult times. Despite a renaissance in 2012, US production of oil has been on a steady decline for nearly four decades, a factor which has been reflected by the average oil price in 2012 being at the highest level in real terms since 1864.
In agriculture, the current ratio of grain inventories to consumption stands at record lows following several years of disappointing global production volumes; which has in turn pushed grain prices higher. Both these factors have undoubtedly constituted towards a heavy burden on the global economy.
The key to unlocking attractive returns
In light of these high prices, so-called unconventional sectors such as shale gas and oil are taking a much more prominent role globally.
In the US, total production of unconventional oil is expected to triple between 2010 and 2020, and in the UK, Chancellor George Osborne recently announced that the UK Government is set to create a generous tax regime for domestic shale gas production.
Other investment drivers include:
• Natural gas prices brought down by the shale gas boom have resulted in a very strong competitive position for companies utilising cheap natural gas and its associated liquids as raw materials.
• Across a global scale, further capital expenditure in deep-water oil and gas exploration and development is expected to double between 2011 and 2015.
• In agriculture, low grain levels gave created opportunities for companies that provide products, equipment and services that increase yield.
Targeted approach to investing in ‘intelligent resources’
Vontobel Asset Management recognises that, by targeting those companies with a focus on unconventional energy, agriculture and advanced materials technologies, attractive returns on capital can be made in the years ahead, as a consequence of high resource prices.
Commenting on this, Sreejith Banerji, Portfolio Manager of the Vontobel Future Resources Fund, which invests solely across unconventional resource sectors, said “As oil and grain prices remain high, and the shale gas and oil revolution begins to take its hold on a global scale, unconventional resource sectors are beginning to take a more prominent role. By using a targeted approach across growth areas, whilst maintaining diversification across resource sectors, investors can take advantage of long term interdependent trends and in turn achieve attractive returns”.