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Natural resources and commodities are the fuel and foundation for the global economy and our daily lives. They’re arguably among the most tangible of real assets. That’s especially true in Canada, as our stock exchange is home to some of the world’s leading oil and gas, renewable energy and mining companies.

Investments can happen directly through ownership of resource-rich lands or indirectly through stocks of companies engaged in resource extraction and production. There are signs that such real assets present increasing opportunities for advisors and their investor clients.

Resource stocks and commodities – such as futures for oil, gold, copper and wheat, among countless others – are highly cyclical, prone to soaring upside and prolonged bottoms in valuation. That includes a recent and historically long run of underperformance, as a recent report from Oxford Economics points out. It notes that while commodities’ valuations are at a decade low relative to other financial assets, they’re forecast to rebound with “significant potential for growth.”

With trade wars erupting everywhere, we’re seeing an economic realignment of supply chains and manufacturing, says Benoit Gervais, portfolio manager and head of the resource investment team at Mackenzie Investments. “This shift inevitably will result in very heavy demand for materials.”

Building factories, for example, requires a lot of natural resource inputs, he says. Governments globally, including Canada, plan to invest trillions of dollars in infrastructure just to keep pace with the dire need to replace aging ports, rail, roads, bridges and other facilities necessary for continued economic growth.

“There’s a wave of real asset investment under way,” says Mr. Gervais, citing infrastructure needs alone. “That also means a rise in demand for commodities and better profitability for producers.”

Copper is one example of that potential. It’s one of 34 minerals the Canadian government considers critical to economic security, particularly as the economy transitions to electrification.

Meeting the world’s electrification objectives will demand 115 per cent more copper to be mined over the next 30 years than what has been mined throughout history to date, according to a recent report from EY.

The four Ds driving a real asset rebound

The case for commodities is backed by the “four Ds”: demographics, decarbonization, digitalization and deregulation, says Eric Menzer, senior managing director, head of advisory solutions, at Manulife Investment Management, and portfolio manager of Manulife Real Asset Investment Fund.

Beyond the demand for industrial inputs such as electricity, oil and gas, copper, nickel and rare earth minerals such as neodymium, the rising global population also requires food and shelter. That’s driving increased demand for agricultural commodities and timber.

“For timber, we have massive housing shortages on both sides of the border, and more green, economically friendly construction using wood, which has a lower carbon footprint than steel and concrete,” Mr. Menzer says.

He adds that both agricultural land and timberland align well with meeting Manulife’s long-term liabilities as an insurer.

“They have long lifespans. With timber properties, in particular, we’re talking about investing in trees that can sit on the stump for 30 years.”

As the trees grow and time passes, timberland investors see gradual value creation that paces with inflation. That’s an attractive trait common among most types of real assets.

Agricultural land provides an inflation hedge plus more steady, near-term income because crops are produced annually (although profits vary greatly from one year to the next). What’s more, these real assets will be increasingly in short supply as climate change and urbanization reduce the amount of arable land, Mr. Menzer says.

Hybrid funds and ETFs offer exposure

Timberland and agricultural land are real assets that have typically been accessible only to institutional investors, given that they require high initial entry points for investment and their illiquidity.

“Even high-net-worth investors wouldn’t have access to timber or farmland investments in the past,” Mr. Menzer notes.

More recently, the investment industry has developed hybrid real asset investment funds. They pair illiquid private exposure to hard-to-access real assets with highly liquid, publicly traded companies involved in commodities production and infrastructure development.

“We’re seeing more investors inquiring about the benefits of real assets as a whole,” Mr. Menzer says.

Exchange-traded funds (ETFs) are another way to gain liquid exposure to futures markets and equities sectors such as renewable energy, mining, and oil and gas.

Macroeconomic conditions appear to be lining up for Canada’s resources sector, says Tyler Mordy, chief investment officer with Forstrong Global Asset Management Inc., a Toronto-based ETF strategy money manager.

The key catalyst, he says: “[is] a global pushback against U.S. protectionism.” Countries from Germany to China are moving away from fiscal austerity and embracing pro-growth policies to stimulate domestic demand. “This shift will reignite commodity demand,” Mr. Mordy says.

Many resource companies are viewed as increasingly necessary for national security, Mr. Gervais adds.

“So, one, producers will see more money for what they produce, and two, they’re going to be revalued upward, especially if they’re considered a strategic asset,” he says.