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Posted by Claire Vaughan on Mar 24th, 2022

Capturing Commodities Upside with Purpose Diversified Real Asset Fund

Commodity prices have gone parabolic with strong underlying fundamentals exacerbated by the unfolding war and humanitarian crisis in Ukraine. Until recently, commodities have spent the better part of the last decade in the doldrums, but we’ve always believed that an allocation to real assets is a vital part of comprehensive portfolio construction.

Due to its commodity-centric approach, Purpose Diversified Real Asset Fund provides a unique opportunity to participate in the broader commodities theme working through markets in real time.

We believe the commodity case is extremely bullish for the following five principal reasons:

1. Bullish economic recovery: Global economies are running hot, providing a strong bid for the raw materials of production. Even sharp rate increases are unlikely to impact commodity demand within a 12–24-month period.

2. Limited potential supply response: Following a period of under-investment in capex, there is less excess supply in the system to bring online in response to demand growth, increasing upside price volatility.

3. Energy transition and ESG adoption are bullish: Transition to renewables creates a new source of demand for key commodities (demand growth), while institutional ESG adoption has increased the cost of capital for traditional resource companies (supply constraint).

4. Investor demand/flows likely to provide a strong tailwind: We expect ongoing and elevated inflation to create a large source of financial demand that has been absent for the better part of a decade.

5. Hedge against geopolitical uncertainty: Russia and Ukraine are globally significant producers of key commodities, including oil & gas, wheat, corn, aluminum, and platinum-group metals. Commodities exposure can be an effective portfolio hedge against the price consequences of this crisis.

Purpose Diversified Real Asset Fund (PRA)

PRA is a diversified portfolio of global commodities and equities linked to real assets designed to capture these tailwinds, providing beneficial diversification in an environment where traditional asset classes tend to struggle.

The fund has exposure to six asset class sleeves weighted using a risk parity framework that normalizes risk across sleeves and smooths volatility relative to an equal-weighted notional approach.

Purpose Diversified Real Asset Fund (PRA)

In this period of commodity price inflation (beginning March 2020), PRA has demonstrated strong growth relative to competing real asset funds. Given the specific commodity-centric nature of the inflationary threat currently passing through markets, we believe the fund’s specific strategy is well-positioned to continue delivering strong results.

Investment Growth

— Claire Vaughan is a Product Analyst and Graeme Cooper is a VP of Product at Purpose Investments

All data sourced from Bloomberg unless otherwise noted.

The content of this document is for informational purposes only, and is not being provided in the context of an offering of any securities described herein, nor is it a recommendation or solicitation to buy, hold or sell any security. The information is not investment advice, nor is it tailored to the needs or circumstances of any investor. Information contained in this document is not, and under no circumstances is it to be construed as, an offering memorandum, prospectus, advertisement or public offering of securities. No securities commission or similar regulatory authority has reviewed this document and any representation to the contrary is an offence. Information contained in this document is believed to be accurate and reliable, however, we cannot guarantee that it is complete or current at all times. The information provided is subject to change without notice.

Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” intend,” “plan,” “believe,” “estimate” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose Investments believe to be reasonable assumptions, Purpose Investments cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Fund mentioned in this story