Think resource optimization for your next investment

Global demand for resources is increasing. And partly responsible for this demand is the rising population in less developed countries (read China and India), which are putting a strain on resources.

According to data from the United Nations, between now and 2050, less developed countries will add about another two billion to the world’s population.

But resource scarcity is an opportunity for investors, said Simon Gottelier, senior portfolio manager with Impax Asset Management, speaking at BNP Paribas Investment Partners’ seminar last week in Toronto.

Many investors have focused only on the resource supply side, he said. While expanding into the supply of resources is still possible, Gottelier admits it has its limits. It’s getting harder and more expensive to replenish the reserves of materials, he said. “Historically, we just found new areas for oil, but the cost of that has gone up dramatically.”

Instead, investors should consider the opportunities in “resource optimization” investments: energy efficiency (e.g., investing in a business that makes energy-efficient transformers), alternative energy, water infrastructure (e.g., investing in a water treatment company), and food, packaging, and safety.

Resource optimization is an “underallocated opportunity,” he continued, adding that resource optimization equities represent about 0.5% of an index. But this opportunity provides higher growth opportunities. Based on seven-year annualized returns, resource optimization investments have a growth rate of 6.8%.

Although Gottelier admits that people will not stop investing on the supply side of resources, he is optimistic about resource optimization investments. “It would be nice to think it would be 2% of an index.”