GMO argues that natural resource equities, despite being deeply out of favor, offer a compelling opportunity driven by extreme undervaluation and long-term structural tailwinds. The paper highlights how negative oil prices and historically low relative valuations create a rare setup, suggesting investors may be underestimating both return potential and diversification benefits.
An Investment Only A Mother Could Love: The Tactical Case
GMO
Lucas White, Jeremy Grantham
Research
8 Pages
Key Takeaways
Historic Valuation Gap: Resource equities sit in the cheapest quintile historically and have delivered ~7% annual outperformance over the next 5 years when starting from similar levels.
Inflation Protection Edge: During 8 inflationary periods above 5%, resource equities beat the S&P 500 every time and generated over 6% real annual returns.
Long-Term Return Stability: Over ~90 years, resource equities outperformed the broad market by more than 2% annually, despite experiencing drawdowns as large as 54% in shorter cycles.
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