Strategic Materials & Commodities: Cornerstones of the Next Decade’s Asset Allocation

Strategic materials are emerging as essential pillars of the energy transition and digital transformation—redefining long-term portfolio construction.
In this perspective from Bank J. Safra Sarasin, structural scarcity, inflation protection, and ESG integration converge to position commodities as a renewed strategic allocation for institutional investors.

Why are strategic materials and commodities attracting growing interest from institutional investors today?

We believe that we are at the beginning of a new commodity super-cycle, driven by a sharp increase in demand for strategic materials. The green transition is highly materials-intensive, requiring substantial resources to build renewable power generation and support broader electrification. In addition, many countries around the world are switching away from fossil fuels at the same time, driving demand simultaneously.

However, the green transition is not the sole factor contributing to the positive outlook for strategic materials. Global demand is also fueled by infrastructure investments, continued urbanization, growth in emerging markets like India, and world population growth. This positive demand outlook is met with an inelastic supply, which bodes well for future prices. Developing new supplies of strategic materials takes years due to the complexity and lengthy exploration as well as engineering processes involved. As the demand-supply gap becomes more apparent, strategic materials and commodities are attracting growing interest from investors. They recognize that this imbalance may offer an investment opportunity, marking the beginning of a new investment era in these critical resources. Additionally, commodities are seen as a hedge against inflation and a diversifier in a balanced portfolio. As geopolitical tensions rise and global economic uncertainties persist, investors are turning to commodities that may protect their investments and bring more stability.

How do you differentiate between the equity approach and direct commodities exposure when addressing these themes? Which investor profiles typically favor each approach? 

Equity based investing and direct commodities exposure are fundamentally different and complementary approaches. 

Equities provide a levered play to commodity prices. In a positive price outlook, mining equities usually outperform the underlying commodity as their earnings, cash flows and dividends/capital returns grow faster. This is because these companies have a high operating leverage: a high fixed cost base and high operating earnings growth stemming from higher commodity prices.  

In addition, an equity solution can benefit from positive stock selection and the active selection of the most attractive value chain areas. The value chain approach is a key differentiator of this strategy. Lastly, equities provide attractive dividend yields which may provide income opportunities and support valuations. Meanwhile, commodities provide direct access to price movements driven by supply and demand. This may allow investors to capitalize on structural shortages or surpluses without relying on corporate performance. In addition, certain commodities, particularly precious metals (gold, silver) and energy resources (oil, natural gas), tend to rise in value during inflationary periods. Holding them directly can help preserve purchasing power when fiat currency loses value. Furthermore, commodities often have a low correlation with traditional stocks and bonds, helping investors reduce overall portfolio volatility. This makes them particularly useful in times of market uncertainty. 

Equities tend to appeal to long-term investors and institutional investors focused on capital appreciation. Meanwhile, commodities attract tactical traders, inflation-hedgers, and portfolio diversifiers seeking assets with low correlation to traditional markets and direct sensitivity to macroeconomic shifts. 

From a portfolio construction perspective, integrating both approaches enables investors to balance structural long-term growth with short-term price responsiveness, enhancing adaptability to evolving market conditions while mitigating risk. 

The JSS Sustainable Equity – Strategic Materials fund follows an Article 8 sustainable investment approach. What criteria do you use to select companies in this space? 

Our equity solution enables investors to get access to this trend through companies with strong environmental, social and governance standards. Our fund is Article 8 under EU SFDR and invests only in BJSS A and B rated stocks based on our proprietary JSS Sustainability Matrix. 

ESG issues are to be found in the upstream part of the value chain, meaning in the extraction of minerals. Issues include environmental impact, loss of biodiversity, greenhouse gas emissions linked to mining activities. 

However, mining minerals remain unavoidable to build the equipment necessary for the green transition so beyond obvious ESG issues, there are also opportunities: 

1. for those companies with best practices in the mining industry;  
2. also, opportunities exists for companies in the mining equipment industry, for instance those providing machines, processes and services to improve environmental impact and work safety will be rewarded. 
3. finally, there are also parts of the strategic materials value chain that are aligned with sustainability principles by nature. That is the case with the recycling part of the value chain. Most metals can be recycled infinitely making strategic materials a great opportunity for circular economy. 

As the strategic materials value chain is sensitive to  ESG issue, we use our proven ESG analysis resources to exclude companies which are not compliant with our minimum requirements in terms of sustainability. ESG integration may also contribute to returns as Metals & Mining companies with the better ESG credentials tend to outperform ESG laggards. 

In addition, investing through equities enables us to drive positive change with our firms through active engagement. 

We believe that an active dialogue with portfolio holdings is critical to help companies improve their sustainability metrics..  To this end, we have a dedicated stewardship team to  support the portfolio management team. 

With an 18-year track record, the JSS Commodity strategy has proven its resilience through various market cycles. How does this experience help you navigate current challenges like volatility, inflation, or de-dollarization? 

At Bank J. Safra Sarasin, our commodity strategy is grounded in extensive academic research and 
implemented through a systematic, rule-based selection and allocation approach. This approach 
aims to provide diversified exposure to a wide array of commodities across energy, metals, and 
agriculture. We believe that investors may benefit from maximising exposure to various segments 
of the commodity universe. Our portfolio construction process places less emphasis on commodity 
price forecasts, as these markets can be opaque and subject to sudden shifts in fundamentals. 
In today’s volatile environment, our systematic strategy enables us to maintain a disciplined 
approach while capturing the inherent advantages and mitigating the risks inherent to 
commodities.. 

Looking ahead, how do you see the role of strategic materials and commodities evolving in diversified portfolios over the next 5 to 10 years? 

Recent geopolitical developments and large-scale project announcements underscore the rising importance of strategic materials. For instance, as part of the “Unleashing American Energy” executive order, the new Trump administration highlighted the importance of critical materials for the US with the aim to secure supply and advance mining and processing of minerals within the United States. Meanwhile, an array of significant global initiatives promises to further stoke demand in the coming years.  

In Europe, Germany's €500 billion infrastructure fund, coupled with the EU's Clean Industrial deal that will mobilize over €100 billion, sets the stage for heightened material needs. In the United States, the $500 billion Stargate Project aimed at funding AI infrastructure will necessitate more data centers, in turn driving up demand for copper to facilitate grid connections. The EU's InvestAI plan, worth €200 billion, also emphasizes developing local AI infrastructure, promising additional growth catalysts for strategic materials. Against this backdrop, companies with exposure to these materials present a compelling narrative of growth potential. Furthermore, companies in the strategic materials value chain boast characteristics that render them particularly appealing in the current economic context. Offering a hedge against inflation and trading at low multiples compared to the broader market - whose P/E ratios still linger above historical averages - they present a compelling proposition for investors. 

In conclusion, strategic materials and commodities offer a unique diversification potential with robust structural growth drivers. Their integration into a diversified portfolio may improve its riskreturn profile. Therefore, their importance is set to grow over the next five to ten years. 

Disclaimer: This article is provided for information purposes only. It does not constitute 
investment advice or a recommendation to buy or sell. Past performance is no guarantee of 
future performance. All investments involve risk, including the risk of loss of capital.