Should Commodities Be a Core Holding in an Asset Allocation?
From Lake Tahoe, Zephyr market strategist Ryan Nauman welcomes Paul Baiocchi, Head of Fund Strategy at SS&C ALPS Advisors, to discuss why commodities have returned to focus amid strong gold and silver performance in 2025 and the Iran conflict’s impact on markets. They explore what recent geopolitical and even weather-driven disruptions reveal about fragile global supply/demand, how energy and other constrained inputs (fertilizer, aluminum, helium, copper) can provide diversification—including periods of negative correlation to the S&P 500—and why many portfolios lack exposure given low energy/materials weights. Paul argues secular forces like AI-driven data center buildouts, electrification, and rising electricity demand create long-term support for commodities and related equities, and outlines implementation approaches spanning commodity baskets, dynamic strategies, and thematic allocations across energy, materials, utilities, renewables, and nuclear.
Zephyr can help financial advisors create modern diversified portfolios. Learn more here.
Learn more about SS&C ALPS Advisors here.
00:00 Welcome to the Podcast
01:06 Meet Paul Baiocchi
02:20 Alps Advisors and ETFs
05:33 Iran Conflict Lessons
09:59 Why Commodities Get Ignored
16:52 AI Electrification Demand
22:02 Commodities Supercycle Case
24:26 Portfolio Allocation Framework
28:38 Smarter Commodity Exposure
33:29 Implementation and Products
35:56 Wrap Up and Resources
Connect with Ryan Nauman:
Transcript
Let's go.
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:Ryan Nauman Market Strategist Zephyr:
Hello everyone and welcome to
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:Zephyr's Adjuster Risk Podcast
from the shores of Lake Tahoe.
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:I'm Ryan Nauman, the market
strategist here at Zephyr.
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:I have another great show
lined up for us today.
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:The performance of gold in silver in 2025
has put commodities on the map again.
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:There are other dynamics that
are supporting the recent demand.
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:I have the perfect guest to talk
about all things commodities and what
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:it all means for financial advisors.
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:But first, today's episode is sponsored
by the award-winning Zephyr, which
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:helps investment professionals
make more informed investment
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:decisions on behalf of their clients.
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:Alright, I've already talked enough.
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:Let's go ahead and move on
to the start of the show.
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:I'd like to give a very
warm welcome to Paul Bki.
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:Paul is the head of fund strategy
at s and C Alps Advisors.
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:Paul, thank you so much
for coming on the show.
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:It's an honor to have you on really
excited about this conversation.
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:Just before we went live here, we talked
that you have connections to Tahoe
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:that used to come up here quite a bit.
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:Maybe we get you on here and we
just talk talk Tahoe stories.
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:Paul Baiocchi Head of Fund Strategy SS&C ALPS Advisors:
I had love that I would absolutely
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:make my day to talk about Tahoe.
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:It's a very special place.
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:For those of you who haven't been,
figure out a way to get there, one of
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:the most beautiful places on earth.
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:Ryan: Yeah, it's fantastic Paul, and
it's, I often talk to people and they're
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:like, how do you like living in Tahoe?
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:It's like very isolated in terms of.
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:Investment in the financial landscape.
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:There's not a whole lot going on.
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:Most of my conversations
are with ski bums.
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:Nothing wrong with ski bums, but that's
where most of my conversations happen.
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:But it's amazing the
connections people have.
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:The Tahoe like yourself.
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:There's a few other folks.
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:Maybe we all need to get
together and do a conference.
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:Little powwow up here.
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:Paul Baiocchi: Yeah,
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:I'd be there.
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:Just tell me when.
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:Ryan: Sounds good.
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:Awesome, Paul, so why don't
we go ahead and get started.
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:Can you just tell us a little bit more
about yourself and SS and C Alps advisors?
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:Paul Baiocchi Head of Fund Strategy SS&C ALPS Advisors:
Yeah, so SS and C ops advisors,
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:our parent company, SS and C is a.
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:Publicly traded financial technology
company, and Alps is an asset manager that
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:lives within SS and C, so mostly ETFs.
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:We do mutual funds and some closed
end funds as well, but we issue
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:and support distribution for
some third party ETFs as well.
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:But at a high level.
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:What we do is we offer building
blocks to advisors to help round
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:out their client portfolios.
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:If you think about our lineup,
it, it's pretty cleanly
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:bucketed into four categories.
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:So you've got midstream, most people
know us for A MLP, which is the largest
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:most liquid M-L-P-E-T-F on the market.
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:Those are energy infrastructure
portfolios, which provide the
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:transportation storage processing
of hydrocarbon, specifically
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:crude oil and natural gas.
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:We've got some factor based strategies.
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:Some thematic strategies as well as
increasingly actively managed strategies.
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:So a lot of different solutions
for a range of advisors and
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:a range of portfolio types.
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:As far as my background goes, Ryan, I
grew up in the San Francisco Bay area.
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:I've been in the ETF world now,
going back to:
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:at a research firm, etf.com.
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:Once upon a time, joined Fidelity after
d have been at Alps now since:
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:Ryan: Fantastic.
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:So you've really seen a lot
then in the whole ETF space.
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:It's amazing how much it's evolved here,
really just in the past two, three years,
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:I would say, and it doesn't look like that
evolution is slowing down anytime soon.
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:Paul Baiocchi: No, the amount of
innovation that takes place every
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:single day in ETFs is pretty remarkable.
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:I think having been through a number of
cycles in the market in the ETF world it
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:feels as if every year is the year where
you say, okay, we've got enough products.
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:Everyone's figured out.
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:The shiny new toy, there's not much
left to do and yet people continue to
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:innovate and challenge that narrative.
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:And it's remarkable because in many ways
it's additive to the client experience,
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:which is what we're all here for is Sure.
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:We're trying to engage around high level
market themes and we're trying to inform
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:advisors and trying to secure allocations.
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:In their model portfolios or
in their investment framework.
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:But at the end of the day, what
they're trying to do is ensure that
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:their clients meet their financial
objectives and realize their ambitions.
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:Ryan: Yeah, Paul, that is spot on
and I'm so glad you brought that up.
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:It was a great way to just
kinda set the stage here.
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:'cause you're right, we're gonna talk
about a lot of things over the course
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:of the next 30, 40 minutes here.
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:But at the end of the day, it's
all about the end investor, the
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:financial advisors, clients that
trying to make better outcomes for
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:them so they can achieve their.
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:Investment objectives, whether that's
through just a basic index, ETF or
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:an active leverage single stock ETF.
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:And I don't know Paul, some of those,
I re read about 'em, it goes right
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:over my head is I don't know what's
going on here, but people like 'em,
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:Paul Baiocchi: an
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:yeah.
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:Ryan: Yeah.
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:So Paul, let's start by just talking
about the conflict in Iran, whether
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:it's a war conflict, however you
wanna talk about, it's taught us a
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:lot about portfolio construction and,
how the bill portfolios for times
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:of crisis and, the diversification.
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:What has the conflict in Rrn
taught you about portfolio
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:construction and what maybe it.
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:Has it led us to open our eyes up
a little bit more moving forward?
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:Paul Baiocchi: Yeah, so we're getting
some news today as we're recording
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:this, that it looks like the strait
is open oil prices are down 10
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:bucks, energy sector selling off.
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:And some people might see that type
of news flow and say, okay, back to
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:normal or back to pre February 27th.
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:And I think there's a danger
in that because one of the key.
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:Learnings from this is just how fraught
global commodities markets are, even in a
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:good environment of a peaceful backdrop.
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:Not saying that even before
this Iran conflict, the world
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:was completely at peace.
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:'cause there's conflicts going
on, of course, in Ukraine and.
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:in, in other parts of the Middle
East and other parts of the world.
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:But at a high level, this is just a
reminder that all of these commodities,
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:whether they be soft commodities,
agricultural, commodities, energy,
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:commodities the base metals important
to infrastructure development and tied
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:into some of this AI investment is.
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:all live on a razor's edge.
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:The supply and demand dynamics
are very challenged at all times.
126
:And a conflict like this where you
have 20% or so of the world's energy
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:basically shut off in short order, does
remind us how fraught those markets are.
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:And it should be a reminder
to everyone that as we try.
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:And achieve these massive
ambitions we have around
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:infrastructure, investment and ai.
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:Dema data center investment, as well
as just the modernization of the
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:economy, of the electrification of
the economy, the supply and demand
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:imbalance for a lot of these commodities.
134
:It likely to be exacerbated, even
absent a conflict like we saw in Iran.
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:And importantly, that dynamic in and
of itself creates a very powerful
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:portfolio construction tool.
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:If you think about the energy
sector, which is part of
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:the commodities landscape.
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:Energy, commodities dominate most
commodities benchmarks during this cycle.
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:Dating back to the beginning of the
conflict, the energy sector actually had
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:negative correlation to the s and p 500.
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:Not many publicly traded equities for
that matter or other asset classes
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:have negative correlation to the stock
market over a long period of time.
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:But over the course of the past
month and change, the energy sector
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:has had negative correlation.
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:To the commodities, to the s and b 500.
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:And if you think about what the
implications of that are first of
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:all, the s and b 500 has less than
5% weight to the energy sector.
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:So most people don't own a lot of it.
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:And then you extend beyond energy to
some of the other commodities that
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:have been impacted by this fertilizer,
aluminum, helium, and important
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:input into chip manufacturing.
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:And you start to wake up to
the fact that these are very
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:constrained, scarce markets.
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:And even if we get a meaningful
resolution of what happens in Iran.
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:The takeaway should be that most of these
countries are gonna be scrambling to
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:invest in the necessary infrastructure,
capacity, et cetera, to ensure that
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:if something like this happens again,
that they're not as impacted by it,
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:that they're more insulated from the
perils of geopolitical conflicts.
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:Ryan: Yeah, Paul, that's fantastic.
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:And it goes, I've conversations about
rare earth materials and elements, right?
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:We're not gonna get into the
element or the calendar or the.
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:The elements today, but it just, the
ai, like you said, chips, and then
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:we have the infrastructure that's
being built out for AI data centers.
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:It puts such a renewed emphasis on some
of these rare earth metals that two years
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:ago we probably weren't even thinking
about investing, and now all of a sudden
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:they're making headlines across the board.
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:And what role does that
have on portfolios?
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:It can be a lot.
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:And like you said, now it's, it
adds diversification, which is
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:arguably the most important thing
to creating an investment portfolio.
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:Why do you think it takes a conflict
like this to remind us how important
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:commodities are in a portfolio?
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:A lot of times I feel like
you have commodities in there.
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:Most people don't invest in
commodities until you really need them.
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:But why?
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:Why do you think it takes a conflict
for the US to realize, you know
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:what commodities are important.
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:Paul Baiocchi: It is a good question.
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:Some of it is just human nature.
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:We've been in this cycle, this
current cycle, dating back to:
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:where what led the market was a very
small slug of stocks concentrated in
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:really three sectors, communication
services, consumer discretionary, and
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:technology, which represent upwards
of 50% of the s and p 500 by Wade.
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:And so in some ways you get lulled into
a false sense of complacency where.
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:Portfolio diversifiers like commodities,
which have low correlations to the
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:ag and low correlations to large cap
equities aren't necessary in a portfolio
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:context because they're not performing
at the level of say, large cap growth
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:or those sectors that we mentioned.
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:And so you almost forget about the
role they can play in a portfolio.
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:And then you realize in fairly
short order that what they offer.
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:Is very critical because you
don't know when something
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:like this is going to pop up.
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:And even taking a step back from that.
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:I think it's hard for people to
appreciate just how scarce some of
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:these critical resources are and how
emerging demand sources for a lot of
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:these resources are putting additional
pressure on all of these commodities
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:and all of these commodities markets.
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:And people also probably aren't aware of
the fact that we've been through a cycle
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:where a lot of the commodities companies,
whether they be energy companies,
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:whether they be metals and mining
companies, have been very disciplined.
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:In their CapEx.
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:They have not been investing
a lot in new properties.
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:New exploration, new processing,
new refining capabilities, and so
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:under investment in the capabilities
that allows us to extract more,
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:produce more, and provide more supply
at a time where all of a sudden.
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:Much of that supply immediately comes
offline, shines a bright light on it.
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:And the hope is that people
realize that even before the Iran
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:conflict, a lot of these commodities
markets were on a razor's edge.
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:And then you add geopolitical uncertainty.
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:And that in many ways exacerbates an
existing problem and reflects in many
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:ways the challenges that people have
of thinking through not just the next
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:few quarters or the next couple years,
but really zooming out from a long-term
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:perspective around portfolio construction.
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:One more point I'll make on this because
I think it's emblematic how challenging
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:these commodities markets are last year.
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:Freeport McMoRan, which is one of the
largest copper producers in the world,
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:had to declare a force majeure at one of
their properties because of a typhoon.
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:And so that's, the copper
market is largely beholden to
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:large suppliers like Freeport.
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:That day you had copper prices
spike nearly 10%, and Freeport
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:McMoRan shares fell by nearly 10%.
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:So even something that isn't
geopolitical in nature is very much.
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:Out of our control as it relates to the
weather and the impact of a significant
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:weather event like that can highlight
just how fraught these markets are.
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:Ryan: Yeah, you're exactly right.
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:It, they're more sensitive to
than just geopolitical concerns.
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:They're sensitive to a lot of
things out there that, like
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:you said, you can't control.
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:One other thing I've talked a lot about
doing research on too is yes, commodities.
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:Sometimes they're often overlooked,
like, why am I investing comms?
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:But do you think like the overall.
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:Fantastic performance of US equities.
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:It makes it hard to even invest just
overseas until recently until:
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:It's like, why invest in commodities
overseas emerging markets when I'm
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:getting 20, 30% in US equities?
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:You're getting all that
outperformance, US equities supremacy.
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:Why?
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:Why?
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:Take away that opportunity to invest
in commodities or something else when
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:it's gonna outperform until you need it.
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:Paul Baiocchi: Yeah.
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:And in many ways it, it speaks to why I
don't envy the challenge that advisors
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:face because there's the behavioral
finance aspect of managing client
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:relationships speaks to challenging a job.
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:It can be to ensure.
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:That you communicate and articulate
effectively why it is that you have
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:different portfolio components within
an asset allocation framework at
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:times where, to your point, we went
on a 16 year run of US outperformance
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:of developed XUS, and I'm sure a lot
of advisors had really challenging
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:conversations around why they had efa,
why they had developed XUS in a portfolio
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:when it continually underperformed.
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:The domestic equity markets and
:
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:because developed XUS outperformed
the US market rather dramatically.
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:And so as an advisor, your job's
not to be, I told you so to your
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:clients, but it is to reiterate.
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:Why all of these portfolio components are
part of that asset allocation strategy.
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:How they all interact and
interface with one another.
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:And in many ways, commodities is akin
to that developed X US allocation
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:because it does have portfolio
attributes that are important.
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:Don't always show up.
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:At every moment of a market cycle.
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:But when they do, it
can be quite powerful.
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:And I think commodities are also
often misunderstood because most
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:people think commodities and they
think volatility and individual
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:commodities do tend to be very volatile.
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:But when you piece them together in a
basket framework, the volatility ends up
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:looking a lot more like a stock portfolio.
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:And so arming.
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:Advisors with that type of education,
which can then cascade down to the
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:client level, can be rather important.
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:And I think that's one of the key
considerations when you're thinking
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:about commodities and their, the role
they play in a portfolio is ensuring
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:that educational gap is closed.
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:Ryan: Yeah, and I often talk
diversification's working when one piece
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:of that portfolio is not working right.
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:You hate that you.
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:It's hard to tell.
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:I explain that to a client
investor that, you know what?
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:It's actually working now when
something might be underperforming.
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:It's not easy conversation.
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:Like you said.
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:I don't envy those conversations at all.
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:That's why I'm sitting here.
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:So Paul, that's great.
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:You mentioned earlier the strait
has been reopened, oil's fallen 10%.
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:Maybe we're getting close to a
resolution, who knows of this conflict.
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:But do you think the renewed emphasis
on commodities will continue after maybe
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:we got have a resolution to this war, or
do you think we'll go back to old times
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:and it's oh, we don't need commodities.
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:Paul Baiocchi: That's a good question
and I think time will tell we're our job,
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:certainly on a day in and day out basis
is trying to ensure that we don't, in
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:many ways return to that mentality of.
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:Say the prior part of this cycle,
or even say the past 15 so years
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:of the rally off of the GFC.
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:And so I do think if you just set the Iran
conflict aside and think about some of
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:the biggest, most important dy economic
dynamics at the moment, we think those.
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:Secular trends are driving the case
for commodities more so than say, a
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:geopolitical conflict of the type that
we're going through right now with Iran.
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:And what I mean by that is you think
about ai, which has been perhaps, if
301
:not the most, maybe the number one,
two, and three focus of the market.
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:In over the course of the past
couple years, and a lot of that
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:focus has been on semiconductors and
the Mag seven or the hyperscalers,
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:their massive CapEx investment.
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:And what we're learning in real time
is that the bottleneck to our AI
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:ambitions is not necessarily just
chips and their availability, but also.
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:The real world, real assets
that are required to unlock ai.
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:And what I mean by that is
you think about a data center
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:project and what comes with that?
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:A lot of steel, aluminum, copper
for the wiring and transmission.
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:gas for generation, nuclear for
generation, wind, solar, and then all
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:of the raw materials that go into the
manufacturing and fabrication of solar
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:cells, of wind, turbines of batteries.
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:You mentioned rare earths and the
inputs into batteries themselves.
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:We've seen an explosion over the course
of the past couple years of enterprise
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:level storage solutions or battery
solutions, and if we could leave
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:advisors when we talk to them with any
takeaway, it's that electricity demand
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:growth is expected to grow at rates
we haven't seen in more than 70 years.
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:And the implications of that are sure
we need to figure out ways to generate
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:more and to transmit more electricity.
321
:And we need to ensure that it
doesn't have an impact on consumer
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:bills, as people fear, but perhaps
more important than any of that.
323
:Is that the bottleneck for this is
the raw materials that go into the
324
:infrastructure needed to support
it, and all of the inputs to that
325
:construction, to that specialization,
and importantly also to what allows us
326
:to generate electricity, natural gas
being the most important at the moment.
327
:Renewables, like wind and solar becoming
increasingly important and perhaps down
328
:the road things like nuclear becoming
a bigger piece of the puzzle as well.
329
:And so commodities, when
you think about copper, its
330
:importance to transmission lines.
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:When you think about aluminum.
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:Nickel an important input into
batteries as well as EV manufacturing.
333
:All of these things are now competing
for a limited supply globally, and we
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:believe that puts upward pressure on
the price of various commodities and
335
:underscores the important role that they
can play in a portfolio that in many ways.
336
:Doesn't have a lot of that exposure.
337
:So setting aside the commodities
themselves, thinking about the public
338
:equities, which are in the business
of mining, extracting, processing,
339
:et cetera, these commodities,
whether they be in the material
340
:sector or say in the energy sector.
341
:Those two sectors add up to less
than 5% of the s and p 500 by weight.
342
:So naturally in a diversified asset
allocation anchored to the s and
343
:p 500 for your large cap equity.
344
:You just don't have a lot of exposure
to the companies in the business of
345
:processing, exploring for refining,
et cetera, these commodities.
346
:And most people I would argue, don't have
exposure to the commodities themselves.
347
:There's an inherent diversification
benefit to adding those sectors
348
:within an equity framework.
349
:But also history tells us that commodities
are also a powerful diversification
350
:tool based on their low correlations to
things like equities and fixed income.
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:Ryan: Paul, that's fantastic.
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:A lot of great insights there.
353
:We, I've got a lot of questions
just based on that and follow up
354
:feedback, but it's I have a lot of
conversations about corn and egg.
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:People don't realize
how important corn is.
356
:Everything we touch has almost corn and
paper, you name it has corn and it's
357
:all these commodities that are bucketed
together, how important they are.
358
:And like you said, ai, we talk a
lot about, the Iran conflict war,
359
:but like you said, I'm glad you
brought it up, really the bigger.
360
:A driver here is AI and the pressures
it's putting on commodities and what,
361
:regardless of what commodity you're
talking about, and then an energy.
362
:So are you thinking that, I think I
know this answer, answer this demand
363
:for commodities probably long term and
probably not gonna be ending anytime.
364
:Paul Baiocchi: Yeah, so if you talk
to a commodities guy they typically
365
:think that we're in some sort of
supercycle at all times, and that's
366
:become a running joke in the industry.
367
:But the truth is.
368
:We're now at a moment where you've got an
a convergence of a lot of massive trends,
369
:which we believe are secular in nature.
370
:You've got resource scarcity,
which is just a limitation of how
371
:much of these things are available
globally, where who controls them.
372
:So you mentioned Rare Earth.
373
:Famously, China to own much of the.
374
:The development, processing,
et cetera of those rare earth.
375
:You think about nickel, which
is an important input into EV
376
:manufacturing, battery manufacturing.
377
:China has significant influence
on that market as well and part
378
:of the current administration's
focus from a policy perspective
379
:is figuring out ways to ensure.
380
:That the US and the developed world
has access to the same rye inputs to
381
:help us achieve our ambitions, which
means investment in new sources of
382
:those commodities, the infrastructure
necessary to support those ambitions.
383
:And then another convergence is of
course, the demand for these raw
384
:materials themselves, which is not
just coming from AI data centers.
385
:It's coming from, as we
talked about, batteries.
386
:The application of storage
alongside renewables, alongside
387
:traditional fossil fuels.
388
:The demand for uranium, which is
coming from the development of small
389
:modular reactors and the re advent,
if you will, of nuclear globally.
390
:You're also now seeing demand for a lot
of these inputs coming from things like
391
:EVs, autonomous vehicles, as well as.
392
:Things like enterprise, commercial
robotics applications, and
393
:eventually I've been told we're
gonna have robots in our houses.
394
:So you've got all of these new demand
sources for the raw materials that
395
:go into all of these applications.
396
:And our belief long term is
that this secular trend is
397
:unlikely to abate anytime soon.
398
:And commodities make for a
really important portfolio
399
:allocation as a result of that.
400
:Ryan: Yeah, you're exactly correct, Paul.
401
:I agree with you completely there.
402
:Let's talk about portfolio
construction here.
403
:How should allocated.
404
:Or financial advisors.
405
:Think about commodities.
406
:You mentioned a diversifier.
407
:Is it something you just a diversifier
during periods of this, or are
408
:you looking like a core holding?
409
:How should they view commodities?
410
:Paul Baiocchi: Yeah, so I, I do believe
that, or we believe that commodity should
411
:be a durable portfolio allocation as
part of an asset allocation framework.
412
:What percentage up to that individual
advisor, and of course, is.
413
:Up to the individual risk tolerance
of that individual client.
414
:The disclaimer there, but at a high
level, we do believe that there should
415
:be a durable, long-term allocation
of commodities based on their
416
:diversification properties and the
important role that they're playing in
417
:the world economy on a go forward basis.
418
:I would say when you think about even
at the equity level, as we talked
419
:about some of the sectors that are.
420
:as a result of this commodity, supercycle.
421
:Those are often sectors that people
don't have a lot of exposure to, so
422
:we don't think necessarily that the
only thing you should do is think
423
:about a commodities allocation as part
of an alt sleeve or as part of your
424
:overall asset allocation framework.
425
:But thinking about exposures.
426
:To diversify your equity exposure into,
say, global natural resources companies
427
:into, say, some of the sectors that
stand to benefit from rising electricity
428
:demand, and the implications of that
demand on the commodities themselves.
429
:So thinking about the material
sector or the energy sector as
430
:well as even the utility sector.
431
:So a thematic portfolio
that's trying to play on, say.
432
:Electrification theme and span some of
those sectors, we think should be part
433
:of a core equity allocation because if
you think about a market cap weighted
434
:portfolio like the s and p 500, which as
we talked about has more than 50% in those
435
:three sectors where the max seven lives,
in many ways, that's a backward looking
436
:view of the market and recent history.
437
:And we know based on history.
438
:The sector allocations in the
market as defined by a market cap
439
:weighted portfolio evolve over time.
440
:They tend to be somewhat cyclical,
and when you have utilities, materials
441
:and energy adding up to less than 10%
of the s and p 500, we don't believe
442
:on a go forward basis that's likely
to be their weight in the s and b 500
443
:based on these massive secular trends.
444
:And so if you're trying to
get ahead of, or reorient.
445
:Your equity allocation toward
those sectors that are currently
446
:underrepresented at based on a
market cap weighted view of the
447
:market, a thematic portfolio like
say Lphi, which focuses on this theme
448
:and has exposure to those sectors.
449
:It allow you to maybe anticipate some of
these longer term trends, as would say, a
450
:global natural resources portfolio focused
on those companies that are mining for
451
:extracting, et cetera, those commodities.
452
:And so all of a sudden you've
got this portfolio, which is
453
:designed not necessarily to
reflect where we've come from.
454
:Likely where we've go, where we're going,
and what the implications are of these
455
:massive secular trends and what the impact
is likely to be on relative returns.
456
:Ryan: Paul, it's almost
like you're reading my mind.
457
:I was just gonna ask like what type of
portfolio strategy, because like you said.
458
:A lot of investors out there,
they might just have like maybe
459
:take a satellite approach.
460
:They have, they might use
spiders their s and p 500 and
461
:then take a satellite approach.
462
:Initially, I think years ago people
would just take a bucket of commodities,
463
:ETF, a bucket of commodities and be,
okay, here's my commodities approach.
464
:That pri, like you said, doesn't
maybe work so much right now.
465
:You probably are missing out on a lot of
exposure to some of these areas that we're
466
:talking about that could produce a lot
of value in solid returns moving forward.
467
:But in that bucket approach of
just commodities, you're probably
468
:missing out thematic approach.
469
:And like you said at the beginning,
there's a lot of ETFs out there that
470
:can bring you that that exposure.
471
:Paul Baiocchi: Yeah.
472
:I think there's a couple things
that you can think about when
473
:you're trying to perhaps.
474
:Involve some of these conversations and
client portfolios on the commodity side.
475
:What most people don't realize
is that your typical commodities
476
:benchmark, like the BComm or the GSEI
have heavy weightings and energy.
477
:That's just what dominates.
478
:'cause they're weighted either by
production or liquidity, and those are
479
:the commodities that dominate the world.
480
:Those baskets as defined by GSEI or b com.
481
:aren't reflective of what's happening in
the moment in terms of supply and demand
482
:dynamics between individual commodities.
483
:And so a strategy that's perhaps
a little bit more dynamic looks
484
:at other factors, say the term
structure of a given commodity
485
:like SDCI does is a way to maybe.
486
:Change the exposure you have to
commodities to be more reflect reflective
487
:of what's going on in a given commodities
basket at a given time and adapt to
488
:what the various commodities are doing
from a term structure perspective.
489
:So that's what I would say on
commodities as it relates to
490
:allocating within a portfolio context.
491
:As it relates to themes, and you've
been doing this for a while, Ryan,
492
:I think most people hear themes.
493
:And they think, okay, core satellite
themes that exist in a satellite,
494
:it's a tactical allocation.
495
:We actually think the electrification
theme, which is based on this idea
496
:that data centers and the convergence
of new technologies, new demand
497
:sources for electricity, is driving
an explosion on electricity demand,
498
:the likes of which we haven't seen
really since the end of World War the
499
:advent of things like air conditioners
and refrigerators and ization.
500
:In the United States that increase
in electricity demand off of a
501
:period where it was pretty stable
has implications for portfolio.
502
:Allocations that investors haven't
really had much exposure to over the
503
:course of the past 10, 15 years, namely
materials, energy, and utilities.
504
:And so we actually think that some
themes like say Lphi and electrification,
505
:should be part of a core allocation.
506
:Reorienting sectors to.
507
:The exposures that you need
to have on a go forward basis.
508
:And what you can also do, Ryan, is
add on top of that exposures to other
509
:potential beneficiaries from this trend.
510
:For example, renewables.
511
:So ACEs is a renewable energy strategy
pulling from multiple different
512
:themes, wind, solar, hydro, et cetera.
513
:But the idea is, one of the takeaways from
the Iran conflict is how do we create.
514
:Energy security that doesn't
necessarily just mean new sources
515
:of crude oil and natural gas.
516
:It also means how do we invest in
renewable sources of electricity
517
:that aren't gonna be beholden to
the whims of geopolitical conflict?
518
:The straight of hor moves closing has
a direct impact on the flow of oil
519
:and natural gas and other commodities.
520
:Certainly we've seen that play out in
real time, but a geopolitical conflict
521
:that I ran isn't gonna affect whether
the sun shines or the wind blows.
522
:Or whether say a uranium powered
small modular reactor is running.
523
:And so if you are looking to maybe
play on the idea of energy security and
524
:round out your exposure to renewables,
you can add to say, an electrification
525
:thematic strategy in a commodity
strategy focused exposure on renewables.
526
:If you think nuclear is gonna continue
to emerge as a solution to both the
527
:energy transition and a focus on.
528
:Energy and electricity security.
529
:Then you can focus on a nuclear Or
again, if you wanna round out your
530
:exposure to Global natural Resources
company, which are underrepresented
531
:in both acqui and EFA and s and p 500,
you can focus in a portfolio though.
532
:So it's really about adding a mosaic
of exposures to your current asset
533
:allocation in anticipation of this
massive check secular trend, which we
534
:don't think is abating anytime soon.
535
:Ryan: Yeah, I agree.
536
:And Paul, that was.
537
:A great recap there.
538
:Ties us back to what we talked about
at the opening and the ETFs and how
539
:innovation has, democratized investing,
and this is a perfect example.
540
:Now you can get exposure to these
little themes, like you said,
541
:whether it's nuclear energy, whereas
maybe five, 10 years ago you.
542
:Weren't able to get exposure unless
you went out in the open market and
543
:bought futures or some type of contract.
544
:So now you, through ETFs and the
innovation financial advisors are
545
:armed with more tools to take more
of a thematic approach to take
546
:advantage of these secular trends,
547
:Paul Baiocchi: Spoiled for choice.
548
:Ryan: Yeah, exactly.
549
:One last thing, and you might be
a little biased here, but how can
550
:financial advisors, allocators.
551
:Implement comm mod and
their investment port.
552
:Like what type of products?
553
:A lot of talk about MLPs stuff
like that is really the best way.
554
:Just, do ETFs maybe take a active
ETF approach or there are other ways
555
:that financial advisors can gain
exposure to these investment themes.
556
:Paul Baiocchi: Yeah, so to
physical commodities or futures
557
:based commodity strategies.
558
:Our argument to your point about
being biased would be SDCI, which
559
:is the USCF investment strategy,
which we talked a little bit about.
560
:Dynamic monthly rebalance towards
a basket of commodities with.
561
:Term structures who are more attractive.
562
:So think backwardation versus contango.
563
:Not to get too far down the rabbit hole
there, but if you look at the relative
564
:performance of SDCI to just a static
weighting based on production, the
565
:relative performance has been very strong.
566
:And so I would separate out a
actual allocation to commodities
567
:themselves from how you.
568
:Implement an equity based strategy
to play on some of these trends.
569
:And so setting that aside, I would say
thinking about the makeup of your equity
570
:allocation and where you have significant
weights, which in most people's
571
:portfolios is to those key sectors,
tech come services, discretionary, and
572
:how you can round out that exposure to
some sectors who more directly benefit.
573
:From that massive CapEx budget coming
specifically from the hyperscalers.
574
:'cause if you separate out who's driving
rising electricity demand and putting
575
:pressure on these commodities and
putting pressure on some of these scarce
576
:resources globally and set aside the
companies who stand to benefit from it.
577
:When you think about the companies
who stand to benefit from it, whether
578
:it's utilities companies, materials
companies, energy companies, to an extent
579
:industrials, companies as well, even.
580
:Solar companies and renewable companies
that sit within the technology sector.
581
:You have plenty of exposure,
in most cases to the companies
582
:driving the demand for these scarce
commodities and for electricity.
583
:You don't necessarily, in a
diversified asset allocation, have
584
:a lot of exposure to the companies
who stand to benefit from it.
585
:And so can you get ahead of that?
586
:And in, in some ways position your
portfolio so that when those sectors
587
:become a bigger piece of the s and
p 500, as their relative performance
588
:drives their relative market cap up,
are you positioned ahead of that?
589
:Not behind it.
590
:Ryan: Paul, awesome conversation.
591
:So much fun going into it.
592
:I was really excited
about this conversation.
593
:He did not disappoint.
594
:Thank you so much for
bringing such great insight.
595
:Lot of fun information.
596
:And just to an area where, like
you said, it should be a, a.
597
:Portion of a portfolio, long term core
holding to, and there's a lot more
598
:opportunities in commodities than I
think there was maybe 10 years ago.
599
:Paul Baiocchi: A
600
:Ryan: fantastic stuff.
601
:Paul Baiocchi: awesome, Ryan.
602
:Thank you.
603
:Ryan: Yeah.
604
:Where can our audience get more
information about SS and C Alps advisors?
605
:Paul Baiocchi: Alps funds.com,
606
:easy.
607
:URL tons of information and research
from our partners and on all of our
608
:products, including A MLP and ffr.
609
:LFI and SDCI.
610
:Ryan: Yeah, you guys do a lot of
great research on the website,
611
:and I love that it's easy.
612
:I'm all about keeping it easy,
so thank you so much, Paul.
613
:Great stuff, and thank you everyone
for listening to this episode is
614
:Zephyr's Adjusted for Risk Podcast.
615
:You can watch all of our other
episodes on the Zephyr YouTube channel.
616
:You can catch 'em also on Spotify
and all your other channels
617
:that you watch your podcasts on.
618
:Thank you very much and have
a great rest of your week.
