2023-04-21 15:33:41 ET
Summary
- The NANR fund is ideally positioned to benefit from the global economic fragmentation caused by the Russia-Ukraine war.
- Invest in the NANR fund to profit from changing supply chains in energy, mining and agriculture.
- The war is an opportunity for North American oil and gas producers, mining and agricultural companies to gain global market share in commodities.
The Russian invasion of Ukraine last year has fundamentally altered the global economic and geo-political order, with wide ranging consequences for international trade.
My investment thesis is that the Western world, especially Europe, will have to reconfigure their supply chains to become less dependent on Russia.
Even when the war ends, it would be a foolish mistake to resume international trade with Russia on key exports such as energy, metals and agricultural products.
"Fool me once, shame on you; fool me twice, shame on me"
The West should aspire for energy and food security. Economic fragmentation is likely to be inflationary but it is a necessity given the new geopolitical reality.
In the next section, we will discuss the investment thesis in more detail.
1. Energy security
Before Russia invaded Ukraine, the European Union was highly dependent on Russian fossil fuel. In 2021, the European Union imported more than 40% of its total gas consumption, 27% of oil imports and 46% of coal imports from Russia.
Energy represented 62% of EU total imports from Russia in 2021 and the EU is trying to be completely independent from Russian fossil fuels by the end of the decade.
North America is going to be a beneficiary of this change as it is a key ally to Europe. Top holdings in the NANR ETF, such as Exxon Mobil (XOM) and Chevron (CVX), will have to fill in this massive energy gap over the next several years.
I believe that the NANR ETF is ideally positioned to profit from an economically fragmented world and is likely to be a winner over the next several years as we see European energy supply chains move from Russia to the West.
2. Food security
Russia is not just a key supplier of oil and gas, but also of wheat and fertilizers. The European Union sourced one third of their cereal imports from Ukraine and Russia in 2021.
Similar to energy security, North America is likely to be a beneficiary of higher wheat exports to Europe, as the EU tries to weed itself out of Russian dependence.
A top 10 holding in the NANR ETF, Archer-Daniels-Midland Company (ADM) has benefited from this situation, achieving a record fourth-quarter profit with expectations that the trend will continue in 2023.
The same problem exists with fertilizers. Russia and China were the leading fertilizer exporting countries in 2021. Canada was the third largest exporter.
It is expected that Canada and the top 10 holding Nutrien (NTR) will have to take a much bigger role in the export of fertilizers for the West and to achieve food security.
If we look at the production of potash, we can see that Russia and Belarus represented nearly 30% of global potash production in 2021.
This current situation is an opportunity for Nutrien, as it is the largest exporter of potash in the world. It is best placed to take market share from Russia and Belarus as the West advances toward food security.
3. Metals and Mining
Russia is a commodity superpower. It is a large exporter of copper, cobalt and nickel, which turn out to be critical materials for electric cars and the renewable energy transition.
Russia is the second-largest exporter of cobalt and holds 10% of the world's supply of nickel. It is also the second largest gold-producing nation in the world.
Therefore, Western sanctions on Russian metals are beneficial for the top 10 holdings Freeport-McMoRan Inc (FCX), Newmont Corporation (NEM) and Barrick Gold Corporation (GOLD), who can increase their market share in the Western world.
ETF overview
The [[NANR]] ETF seeks to track the S&P BMI North American Natural Resources Index which includes large and mid-cap companies based in the U.S. and Canada, within one of the following three natural resources categories: energy, metals & mining and agriculture.
The fund has generated a 13.89% per annum NAV return since its inception, out-performing the S&P 500 index and its benchmark. The fund has a distribution yield of 2.60% as of Apr 19 2023.
NANR's top 10 holdings:
Conclusion
The NANR fund is ideally positioned to benefit from the global economic fragmentation caused by the Russia-Ukraine war. Invest in the NANR fund to profit from changing supply chains in energy, mining and agriculture.
The weaponization of energy and other key commodities by Russia also presents an opportunity for North American oil and gas producers, mining and agricultural companies to gain global market share by being a supplier of choice for the European Union.
For further details see:
NANR: Invest In Western Energy And Food Security