A remarkable and extensive research report from BofA Securities takes 135 pages to explain how investment portfolios can benefit from a world that is rapidly running out of, well, everything.
Haim Israel’s The World is Not Enough – Scarcity Primer begins by noting that current usage rates imply the need to double most global resources by 2030, and, without conservation, most available fresh water could be exhausted by 2040. Phosphorous, an important input for agriculture, might see declining supply after 2030, putting food supply at risk.
Mr. Israel writes, “structural scarcity …will only get worse … a transforming world needs transformative solutions – not just grow, mine or produce more.” He terms these solutions “scarcity tech” – the application of technology to balance supply and demand for important global resources.
The strategist organizes this scarcity theme into 10 categories – water, biodiversity and air, rare earth and metals, agriculture, waste disposal, processing power, youth (demographics), health and wellness, skills and education, and time (efficiency).
Agriculture and metals are two areas where Canadian companies enjoy competitive advantages relative to global peers.
Mr. Israel begins the agriculture section with a jarring statistic. According to the World Wildlife Fund, global food production in the next 40 years must exceed the entirety of production for the last 8000 years. Also, the world has lost one-third of arable land in the past 30 years, although the report also cites experts estimating that there are 1.4 billion hectares of land that could be converted to farming, most in Latin America and sub-Sahara Africa.
BofA believes the solutions to shortages of land and fertilizer will involve phosphate discovery, animal health development, plant based protein, vertical farming and laboratory grown meat. The sectors that will benefit include chemical and life sciences firms. In a separate research report, Mr. Israel’s colleague Eric Lopez lists Mosaic Co., Zoetis Inc., and Elanco Animal Health Inc. as direct beneficiaries of the trend although there are obvious domestic companies like Nutrien Ltd. that are involved.
The demand for rare earth metals is set to climb six-fold to facilitate the transition to sustainable energy alone before 2050. BofA estimates that lithium demand is set to increase by an even more rapid pace – by 40 times to 2040 – because of battery sales. Mr. Israel emphasizes the necessity for “recycling, new shorter supply chains, and new technologies for more efficient [metals] extraction” in the next 30 years. Mr. Lopez highlights MP Materials Corp. and Sigma Lithium Corp as potential beneficiaries.
It’s impossible to summarize such a wide reaching research report here and unfortunately it’s not publicly available. I hope to return to the theme for further discussion in the coming weeks.
-- Scott Barlow, Globe and Mail market strategist
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The Rundown
The three secrets to investing success
Some people become millionaires by investing. Others wallow, never getting ahead while complaining the stock market is fixed. What’s the difference? I can sum it up in three words: commitment, discipline, and patience, writes Gordon Pape.
Threat of war in Ukraine pushes markets closer to ‘peak pessimism’
The threat of a European war has joined an extensive list of concerns weighing on investors this year, raising the question of whether stock market sentiment is approaching a low point. From surging inflation and the prospect of rising interest rates, to slowing earnings momentum and a downturn for technology stocks, investors have had plenty of reasons in 2022 to take a cautious approach, writes David Berman.
All-male boards return to Canada’s biggest stock index
More than two years ago The Globe and Mail published an article with the news that – finally – the S&P/TSX Composite, the stock index with more than 200 of Canada’s largest companies, didn’t have a single member with an all-male board of directors. Well, sometimes we take steps backward, said David Milstead.
Bonds vs. GICs: A ‘which offers the best yield’ smackdown
Owning bonds is a grind these days – literally. The prospect of a long and potentially sharp rise in interest rates has been grinding down the price of bonds and bond funds. But if you’re putting new money into bonds, you’ll find yields are well up from levels of a year ago. Yields on guaranteed investment certificates are on the rise as well, which presents a question for investors. Are bonds the best way to extract the most yield in the current market, or GICs? Rob Carrick takes a look.
Ukraine jolt sees more consensus trades hits the skids
The new year is proving unkind to the global investor consensus yet again and low visibility now becomes a major problem. As simmering Russia-Ukraine tensions boiled over this week, big bets on emerging market and euro zone stocks look to be going the same way as 2022′s other hot tip - the overwhelmingly bullish U.S. dollar view, says Mike Dolan of Reuters.
China’s Zero-COVID policy is a drag on global growth, this could mean uncertainty for investors
While other countries with high vaccination levels are easing restrictions and adjusting to life with Omicron, China faces a fresh wave of quarantines, factory closings and supply chain disruptions. This will inevitably hamper the global recovery – China accounted for more than a quarter of world economic growth last year – and heighten inflationary pressures,” writes Brian Milner.
U.S. market fallout from Russia-Ukraine strife may be brief, some strategists say
As the S&P 500 hovers near correction territory, Wall Street is gauging the further effect of the conflict between Russia and Ukraine on asset prices, with some strategists warning investors to keep their cool and focus on longer-term market trends. Worries over geopolitical strife and a more hawkish Fed have combined to take the S&P 500 down nearly 10% from an all-time high hit in early January, according to Reuters.
Bitcoin could be laid low by miners’ malady
Bitcoin miners are feeling the heat – and the pain’s rippling downstream to pressure prices. The cryptocurrency’s spectacular rally in 2021 drew thousands of entrants into mining, or producing new coin. As a result the hashrate, or combined computational power used by bitcoin miners globally, has roughly quadrupled over the past six months to blow past 200 million “terahashes” per second. But what’s that got to do with the price of bitcoin? Medha Singh and Lisa Pauline Mattackal of Reuters explain.
Others (for subscribers)
Wednesday’s analyst upgrades and downgrades
Tuesday’s analyst upgrades and downgrades
Analysts’ forecast returns and recommendations for all stocks in the S&P/TSX Composite Index
Tuesday’s Insider Report: CEO invests nearly $700,000 in this financial stock yielding 5%
Others (for everyone)
Global stock market outlook for 2022 modest even before Russia-Ukraine escalation: poll
Hedge funds win again with U.S. curve flatteners
Escalating Russia-Ukraine crisis ripples through markets: Here’s what the Street is saying
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Ask Globe Investor
Question: Regarding your recent column about “phantom distributions” for exchange-traded funds, am I correct that they are always reported on the T3 slips we receive?
Answer: Yes, and no. The capital gains that give rise to a fund’s reinvested distribution – also known as a non-cash or phantom distribution – are included on the T3 Statement of Trust Income. However, the amount may be commingled with other capital gains reported in the same box. The T3 does not break out or identify reinvested distributions separately, which means you can’t rely on the T3 alone to determine whether, or by how much, you should increase the adjusted cost base (ACB) of your ETF units.
As I mentioned in my column, ETF companies publish reinvested distribution amounts for their funds in December, so investors can look up the numbers on the ETF provider’s website and adjust their ACBs accordingly. Even if you are relying on your broker’s “average cost” or “book value” figures, I recommend that you verify that reinvested distributions have been included. Otherwise, your ACB might be lower than it should be, which could inflate your capital gain and lead to higher taxes than necessary when you eventually sell your units.
-- John Heinzl
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Compiled by Globe Investor Staff