�۶���Ƶ

AM: Developing a “pure play” concept has been critical. A lot of thematic funds have a lot of common names, while we have found a niche in selecting securities that generate over 50% of current year revenues from one of seven long-term secular growth trends we have identified. That is the niche we have chosen.

Another key has been working hard on expanding the distribution network into the retail, wholesale, and wealth management channels through partnerships with third parties.

AM: We position ourselves as providing satellite solutions. It is rare that someone buys one of our funds as a core allocation. Our starting point is to say there are some very long-term secular trends in the world. In a traditional approach, the equity universe is divided into regions/countries, and sectors. But increasingly it is difficult to draw the line on what sector a company is actually in, or how relevant the country of listing is for a company that generates most of its revenues from outside that country. We think these trends will be dynamic, with winners and losers, so we do not want to buy everything in the space. So portfolio managers should also provide value beyond identifying the universe, unlike in an ETF.

AM: The high interest rate environment has been challenging for growth companies. But we are not trying to time the market, or make macro bets. What we are really saying is that the long term is powerful, and we try to get that right by doing super deep dives on fundamental analysis. The short term can be very difficult to predict, but it can provide opportunities to add on large, undue weakness or take profits on strength. We are always looking for milestones to test our theses, whether new information confirms it or challenges it.

AM: Portfolio managers are specialists in their theme, and won’t have the same level of conviction in different areas. When a theme gets expensive, like robotics did in the summer of 2021, we can reduce names where we do not see a lot of scope for valuations to expand – in some cases, positions we had held for years – and rotate into more value plays within the theme. In the end, the client is buying an equity fund and we have to make sure it is fully invested and delivering what we say it will.

AM: Typically, around 200 to 350 names per theme is normal. At this stage, themes are still a big universe and growing, but there is the potential for consolidation within each theme as companies mature over time. In terms of synergies, we are excited to test �۶���Ƶ Asset Management’s theme engine, since we do everything on a bottom-up basis at present. Each of our lead portfolio managers has been an investor in their area for about 20 years, and so has a lot of experience within each area.

AM: Understanding the customer. In our discussions, a realization I have had is that many clients care about generating positive returns, and are less concerned with tracking error or Sharpe ratios. Many clients are entrepreneurs and invest in innovation, we try to deliver that and prove we are experts in this business area.

CB: There is nothing wrong with other asset classes, but the best reason is for inflation hedging where commodities have historically performed better than TIPS, real assets, or gold on a standalone basis. This is less about the rate of inflation and more where it is relative to expectations – above-expected inflation tends to be good for commodities.

CB: There are different ways to tailor exposure depending on the risk and volatility tolerance of the client. On mandates for large institutions, there are custom benchmarks that can be built. Separately, there are ETFs that you can use, where there is a focus on long only. But you can also go for alpha and absolute returns, and consider that for diversification purposes.

CB: For pure inflation protection, commodities have done better than producers. Elements like the cost of funding and production hedging are considerations for the company, but not the commodity. The commodity isn’t exposed to the execution or capital risks of the company.

CB: The construction and reweighting of commodity indexes have become more environmentally friendly over time. For instance, the Bloomberg Commodity Index has shifted to two more environmentally-friendly versions of different energy products. The indexes will evolve alongside the world, and it is clear we need commodities to build out the physical infrastructure for decarbonization efforts.

CB: More tactically, we like aluminum versus copper. In the short term, copper is pricing in strong demand from decarbonization being enough to offset the drag from China’s property sector, and we think that may be too optimistic in the short term.

The aluminum market doesn’t seem to be projecting the first-half demand strength into the second half even though there is a strong overlap in end use demand for both, especially on decarbonization. On the supply side, we would say the market implies poor supply conditions will continue in copper for the second half, but producer guidance is implying a notable increase in supply. For aluminum, the working assumption is that a certain region in China returns to the market. We haven’t seen a rise in aluminum inventories in China, so for the short term we think conditions are a little more favorable there.

CB: A lot of it will likely come from China. However, with China, there is a question of how much more they can produce and still be consistent with their environmental goals.

CB: On oil, OPEC has become much more proactive in curbing production to support oil prices ahead of potential demand weakness, and can always export more if demand is above expectations. WTI around $85 is like $70 before the pandemic in inflation-adjusted terms, so prices might seem higher but are not really when seen through that lens. The 2015 and 2020 drops in oil prices appear to be the exception rather than the norm. US shale producers have been rewarded greatly by having production discipline, and we expect that will continue. For Q2 2025, the market is expecting $80 Brent, and we think it will be higher.

Gold can often have a relationship with inflation and real rates. At times it can hedge against inflation if it coincides with a weaker US dollar or lack of central bank commitment to bring down inflation. But if the Fed is responding quickly and the dollar is strong, gold can weaken. We view gold as being useful within a basket, and really performing well during times of crisis.

Right now, industrial demand for silver is about 45% of its use, and 25% of that is for solar applications. I would say both the industrial side and solar demand component should continue to grow. So for quite some time, silver will have this dual-hatting role as a precious and industrial metal.

The structural demand from decarbonization story is very positive copper over the long term. We haven’t found a suitable replacement, so opportunities for demand destruction are limited, unlike cobalt. But it will take time for the structural theme to play out, and in the near term balances might become looser. We see deficits in the second half of the decade, because after the recent round of supply comes to market, there appears to be little more in the pipeline. We estimate it takes 10 to 15 years to find, permit, build, and commission a large mine within the current global environment; we needed to see investment five years ago. Balance sheets have been constrained, with a focus on profitability, so we need to see medium-term prices higher to get that investment.

Agricultural commodities have a much shorter investment cycle, which tends to mean that shortages or oversupply can be fixed on a much quicker basis. Demand for agriculture is also less elastic, because human consumers don’t adjust diets radically, and a lot of demand for agriculture commodities is driven by livestock feed. Generally prices are driven by weather, and occasionally geopolitical risks. We are coming off three consecutive La Ninas, and are moving to an El Nino, so volatility for agricultural commodities (also known as “softs”) can be higher. We are closer to neutral on this area of the market, and would watch for spikes if the Russia/Ukraine war escalates.

CB: Physical players can also have issues with cost of funding, and be squeezed out by basis issues. What we have on the long-only side is an unlevered product, and have a large amount of unencumbered cash, so we have opportunities to be a liquidity provider.