Some so-called laggards in the commodity supercycle - potash, iron ore and the mining majors - continue to dominate the rankings for 12-month returns from listed stocks. Some of the better known plays - gold, oil, copper and aluminium - are now the real laggards along with other subsectors as global investors continue to rotate portfolio flows, dabbling on the fringes of what could be a mania.
The general commodities supercycle has been in place since early 2002 and while the earnings-measured value of listed stocks is not yet historically sensitive - with the exception of listed gold stocks - investors and speculators are today far more savvy about the resources universe than seven years ago. A growing number of institutional investors recognise commodities as a discrete asset class.
To put the better-known plays in perspective, consider that Barrick (ABX US, USD 42.07 a share), the world's biggest gold stock, has registered a 131% increase in its stock price over the past five years. Over that period the gold price has risen from around $350 to over $1,000 an ounce at one point. Gold bullion is now in a correction and consolidation phase, like other high-beta plays, particularly silver, and agricultural futures. These are commodity investments that tend to outperform during times of crisis, or perceived crisis.
Again, over the past five years, the Dow Jones Industrial Index, possibly the most-watched stock barometer in the world, has increased by just 45%. Compare this return with some of the so-called later cycle commodity plays, where investors have increasingly recognised idiosyncratic industry structures and demonstrable intrinsic pricing power. Over the past five years, the quoted stock price of Vale (RIO US, USD 41.01), the world's biggest player in seaborne iron ore, has increased by 1,001%.
The value of PotashCorp (POT US, CAD 194.25), which now ranks as one of the world's top ten mining stocks by value, has increased by just under 1,800%. For investors who chuckle at the idea of potash mining, consider that in Saskatchewan, host to one of only two primary potash basins in the world, mining only starts at about 1,800 metres down, and continues to more than 3,000 metres. A new mine costs $2.5bn - excluding infrastructure - and takes five to seven years to deliver its first output.
Recent portfolio flows and rotations among listed stocks also continue to favour platinum names - where the fundamentals are without controversy - and also very minor metal tin with well-known recent supply squeezes from the world's two biggest producers, China and Indonesia. Portfolio flows have also been favourable just latterly for stocks listed in oil and also oil sands, a specific related play, with assets located mainly in Canada.
Meanwhile, 12-month returns from listed copper stocks continue to be poor, despite the metal's persistent refusal to stage any serious correction from record levels just above $4/lb. In terms of the value of output, copper ranks as the biggest base metal, followed by aluminium (the biggest in terms of tonnage), with nickel in a distant third place.
Nickel metal prices halved last year, and have since trended sideways. A number of analysts have voiced the opinion that production of low grade nickel pig iron in Indonesia may be increasingly marginal at current prices, putting a possible sparkle into forward nickel metal prices, and underpinning recent portfolio flows into nickel stocks.
Meanwhile, listed silver stocks appear to remain seriously out of fashion, a trend that has gathered pace since the introduction in 2006 of the iShares Silver (SLV US, USD 180.21 a unit) exchange traded fund (ETF). The ETF now holds USD 3.5bn worth of physical silver, a process that has partly cannibalized investment in listed silver stocks. At least some of the relative underperformance of gold stocks can also be attributed to ETFs; the biggest gold one, Streettracks (GLD US, USD 91.23), currently holds physical gold bullion worth USD 17.6bn.
GLOBAL LISTED RESOURCES STOCKS
Composite weighted 12-month net gains/losses
* Investable market capitalisation
** IMC counted in other sub-sectors
Source: Analysis by Barry Sergeant