The Asset Quilt
According to the most recent ‘Asset Quilt of Total Returns’ put together by Bank of America Merrill Lynch, commodities are the top returning asset class of 2018 so far. Going by the total returns of asset classes over the years, commodities have given an annualised return of 22.7 per cent year-to-date. Right behind it is gold, which sits at 11.6 per cent on an annualised basis. For various reasons, commodities have bounced back in the last three years. The return of oil prices have helped to resurrect the sector. Ironically, the anticipated metal demand from renewable energy – which will be used to wean society off of fossil fuel consumption – is also a massive driver behind commodities right now.
Not only are base metals like copper, aluminum, and nickel essential for the “electrification of everything”, but lesser-known materials like lithium, cobalt, rare earths, vanadium, uranium, and graphite all play essential roles as well. They do everything from enabling lithiumion batteries and vanadium flow batteries, to making possible the permanent magnets that generate electricity from wind turbines.