The Six Disruptive D’s: Transforming Commodity Demand in Today’s Market

Joining us to discuss how to strategically allocate to real assets, is Hakan Kaya, Senior Portfolio Manager at Neuberger Berman commodity strategy ETF trading under ticker symbol and BCM great to have you here.

Thank you so much for joining us today.

Well stocks and bonds have been the go to portfolio for decades, but we are looking at.

Both stocks and bonds becoming vulnerable at the same time.

So give us an idea of what investors are thinking right now and how commodities actually act as a buffer when both equities and fixed income reprice.

Of course, thanks for having me.

And if you step back, the classical portfolio has both stocks and bonds.

And it seemed to have worked for many, many years because these stocks and bonds diversified each other, and the problem now is inflation uncertainty and you know, both stocks and bonds, they are exposed to this uncertainty and as a result you get this coupling on the downside when the inflation news are. on the upside.

So it's where I think commodities come in.

It's kind of like, you know, you get to understand that stocks and bonds are about, you know, discounting future cash flows that are distant in the future.

Commodities, they don't do that.

They are all present spot assets, and that's why they provide it. through inflation hedge, and that's why I like to think about commodities as kind of like a call option on inflation itself or a put option on joint stock bond selloffs together and of course it's very difficult to time these joint stock bond selloffs or inflation upside. downsides.

So that's why we recommend our clients to have some commodities at all times to get that insurance and for making your asset allocation, making your portfolios, bringing that, you know, macro stability to your portfolios in a robust manner.

And I know that you refer to what is known as the disruptive Ds, and you recently expanded this framework to additional transformational trends.

So out of these massive structural shifts, which ones are reshaping commodity demand the fastest?

Why do they make real assets impossible to ignore right now?

I, I think it's a great question.

I think, you know, like I said, commodities make sense as a strategic insurance, but I think, you know, when I think about it, everything that investors should care about now, they show up in commodities, and I like to think about these as these what we call the six disruptive Ds, just to start with, you know, we have this divestment for decades, capital, moved away from dirty long cycle commodities into Assets like tech tech and Max and so simply, we don't have enough investment that went into this space and it creates the supply fragilities.

And you know, because these are long cycle investments, you cannot fix them very quickly.

There is just simply not enough incentives for investors to solve these problems in the short term or the producers to produce in the short term unless we get to high.

Crisis.

So there's going to be supply fragilities.

And on top of that, I'd like to say the second D I like to think about is decarbonization, and I think it's very misunderstood in the market, you know, it's not just about climate risks.

I think it's more about self-sufficiency and energy diversification.

Uh, it's extremely materials intensive.

Uh, it's, I think it's, you know, going, what is going on right now in the Middle East is this decarbonization.

I think it's going to accelerate.

You need EVs, grid spending, all required copper, aluminum, nickel, and I think it's going to, and also you need kind of like power and energy still to, to, to move these EVs.

So decarbonization is going to intensify.

On top of that, you have data centers and digitization.

I think people think about digital as AI, but I think it's very physical.

There's no cloud without copper.

There's no cloud without aluminum, and No competition without energy.

So these hyper-skillers, I think they will first need to hyperscale their, uh, commodity, especially energy and metal cement.

And on top of that, you see, the third thing I'd like to emphasize is this, uh, the risking of supply chains and deglobalization, and we are kind of like moving from this, uh, what I like to call efficiency regime to resilience regime, you know, that requires more onshoring, reshoring, more reduction. on stockpiling, all of which is, I think, you know, again, is very resource intensive and requires higher costs now due to the kind of like ongoing, uh, you know, immigration policies and tighter labor costs.

I think it's going to be a critical factor impacting the inflation and I'd like to say on top of that, on top of this deglobalization, you have the dedollarization and these concepts of safety is changing across the world and You know, central banks, you know, foreign investors, they are looking for safety, and the dollar is not necessarily providing it.

I think a lot of people are looking for neutrality and nothing gets more neutral than commodities and especially vault.

And finally, I'd like to mention the 6, which is defense, which is kind of like Dr.

Hakan, I am sorry to interrupt, but we will have to leave it there for today's session.

So thank you so much for joining me.

I appreciate your time as well as all of your insights.