What's Next for Commodities

Bet on the producers, say managers of RS Global Natural Resources.

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Do you invest in renewable energy?


Davis: We're focused on the economics and understanding the math behind projects. Broadly speaking, what we've seen so far in the alternative energy space is that the projects don't necessarily work without government subsidies, and the stocks don't work unless you're willing to assume very significant rates of growth over long periods of time. However, we're looking for free options inside larger companies. For example, we have a number of coal investments that are putting significant funding toward clean coal technologies. That's a way to get access to their development without having to pay for it. We also try to follow the food chain with things like the nuclear renaissance and the water shortage, which we think we're getting closer to on a global basis. We won't necessarily invest in a General Electric, which is building a lot of the infrastructure, but we'll look at who the parts suppliers are and who's supplying alloys and metals.

How much of a portfolio should be dedicated to commodities?


Davis: What's happening in commodities is probably the same thing that happened to real estate 10 to 15 years ago. Real estate went from being an optional allocation to pretty much a permanent allocation in portfolios. Whether it's a 5 percent or 15 percent allocation to commodities and natural resources varies by individual. It's also an interesting way, we think, to get exposure to the emerging economies, where much of the demand is coming from.