Buy Metals or Buy Miners? BlackRock's Hambro Weighs In

We’re in the market right now where the commodities have been kind of gently bubble bubbling away, you know the pressures of building across a a a suite of them. You know on your slot earlier this morning you were talking about some of the droughts in Africa and the and the pressures that they’re having there. We’ve seen the issues that have been playing out in Coco as well. So I think that what we’re seeing coming through in the market is fundamentals starting to have more of an impact on pricing of commodities and we’re starting to see financial investors wake up to this, you know having been complacent for quite a long time and taking supply for granted. You know some of these markets are now starting to become very, very tight. You know I think the negative sentiment around China has been a big overhang on the market and there’s kind of cooled any form of kind of interest of looking at it and now we’re starting to see some of those pressures ease. We saw the economic data today that you know good in parts certainly better than people have been expecting a few months ago. So as that as that sentiment starts to kind of disappear, the fundamentals should start to come through and commodities like gold and copper and others will move back towards fundamental pricing. And and that’s very exciting for for groups like ourselves in that kind of environment. Do I buy metals or do I buy miners? Yeah, great question. I think when we look at it, yeah, there’s there’s a a role for both. Yeah. And that’s not me not answering your question. It’s just, it’s it’s just saying that you know some people like to have pure exposure to the commodities. They’re happy to take the the risk attached to futures contracts which make up a lot of that commodity exposure in the in the products that are created or the indices. And some people actually want the growth in the companies, they want the expiration, they want the dividends, they want companies managing that commodity exposure for them and therefore go into the equities. They there is obviously that equity volatility which is in addition to the commodity price exposure. So as long as you’re comfortable with that high level of risk and that and that can be compensated for with a higher rate of return like a dividend and and so on through time, then there’s a role for both. What we see across our clients is that when they want to have the kind of more and more kind of positive view on the market, you know definitely going to go into the commodity equities absolutely because you get that higher, higher bank. There’s still room to go in that trade. Well, when you look at the commodity equity valuations, they’re trading way below their own historical averages in terms of multiples. You know they have rallied a little bit in the in the kind of last few weeks, but way below the historical multiples. When you look at PE multiples, you look at EVT EBITDA, you look at dividend yields, they’re screening incredibly cheaply relative to their own history, let alone to the huge discount they’re trading at to normal kind of normal market multiples in the next five years or even the next 12 months. What’s the go to hedge? Well, what we’re seeing right now and and you you started off on this earlier on, you know is we are seeing people looking at gold. You know we’ve got a lot of geopolitical uncertainty in the world right now. We’ve got a lot of uncertainty around interest rates and are they going to be cut or not. What’s moving in currencies and and what’s been fascinating to us is just seeing that preservation of purchasing power that gold’s been able to deliver. You know we’ve got some wonderful data attached this and you look at you know what what what gold is able to buy you through time and how much that preservation of that purchasing power has been able to help you. So fulfilling that role of a safe haven asset, you know keeping your wealth intact, it’s it’s not just the dollar people are turning to and you’re seeing it in central bank activity. Central banks have been buying gold on a on a real tear over the last couple of couple of years and we’ve seen a big pick up in in interest there. So you know, that to me is an exciting sign that we’ve kind of been focusing on.