INVESTING FUNDAMENTALS STILL APPLY
Despite the dramatic impact of recent energy price movements on the equity markets, investors should be cautious about making short-term, tactical movements in their portfolios. We believe that long-term investment success depends on proper diversification across an entire portfolio, as well as within the individual strategies used to achieve an investors’ desired exposures.
For example, a commodities strategy heavily concentrated in oil and gas producers that may have delivered higher returns during February and March of 2022 is subject to higher risk of losses when demand for energy declines. A well-diversified natural resources strategy that includes exposure to other important sectors can provide the inflation-hedging and return potential that investors seek, without taking additional risks related to an energy sector that’s still in the midst of a long-term transition.
Likewise, infrastructure strategies should balance investments across sectors to avoid concentration in energy-related industries like pipelines and utilities. Geographic diversification can also reduce risks related to regulations, political activity and natural disasters.
No one can predict what may cause the next energy shock, or how the economy may adjust to these events over the long-term. Choosing well-constructed, well-diversified real asset and infrastructure strategies can help investors increase the odds of achieving their goals under a broad range of circumstances.