Investors shift from betting on growth to bracing for scarcity

Unearthing phosphate at a Mosaic Co. mine in Fort Meade, Fla.Photo: Bloomberg

Rising consumer prices and the threat of higher interest rates began nudging investors out of growth stocks and toward commodities-driven companies in late 2021. But the war and sanctions on Russia, a major exporter of natural resources, accelerated the shift. "The entire market was surprised at how quickly commodities were bid up," says Seth Goldstein, an equity strategist at Morningstar Inc. Shares of fertilizer makers, oil and gas producers, and miners have soared since Feb. 23, the day before the invasion.

For years, many funds shied away from commodities because of paltry returns and growing investor attention to environmental issues. "Now that calculus has flipped," says Rory Johnston, managing director and market economist at Price Street and author of the Commodity Context newsletter.

Not everyone is racing to get in. Parnassus Investments LLC, an environmentally conscious San Francisco investment firm, divested from fossil fuels and related companies in 2019. Although the rise in oil and gas prices is helping such stocks now, "it's only been a couple of months," says Joe Sinha, the firm's chief marketing officer. Over the long run, rising oil prices could hasten the shift to cleaner technologies such as electric vehicles. Notably, among recent top performers is a solar power equipment maker.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.