Fund managers are increasingly vocal about the mining and metals sector entering a prolonged uptrend. Propelled by a surge in artificial intelligence infrastructure investment, rising defense expenditures, and investors rotating out of expensive technology stocks, capital is flowing into mining and metals at the fastest pace in years, signaling the start of a potential supercycle. Data from research firm ETFGI reveals that assets under management in mining-focused exchange-traded funds (ETFs) more than doubled to $87.4 billion as of March 31, up from $37 billion a year prior. Concurrently, the oil & gas and agriculture sectors are also attracting significant capital. This large-scale shift of market funds towards hard assets is driving a historic rotation in asset class preferences.
During the first quarter of this year, investors allocated $8.24 billion to the mining sector, a stark reversal from the sentiment in the first three months of the previous year. At that time, comprehensive tariff measures announced by then-US President Donald Trump triggered outflows of $2.52 billion. Evy Hambro, a portfolio manager at BlackRock, noted that capital is beginning to move from highly-valued tech stocks towards hard assets, a phase he describes as the "early innings of a commodities supercycle." This shift coincides with the Morningstar US Technology Index declining 9% in Q1. Shares of the world's two largest mining companies, BHP Group and Rio Tinto, both reached record highs, with copper prices moving in tandem with BHP's stock.
Hambro explained that the metal intensity of GDP is rising due to substantial increases in capital investment for grid infrastructure, data centers, electric vehicles, and charging stations. Unlike the boom driven by Chinese urbanization in the early 2000s, Hambro suggests demand in this cycle is "stronger and more resilient," as it is diversified across global trends in AI, electrification, and defense. However, analysts and investors caution that this rotation into metal markets heightens the risk of sharp price volatility. Given that metal markets are relatively small compared to global equity and bond markets, they are more susceptible to disruptions from bottlenecks in mining, refining, and transportation.
Taosha Wang of Fidelity stated that a supercycle focused on mining and energy has arrived, as conflicts like the war involving Iran force governments to prioritize supply security. Fund flows are showing a distinct tilt towards industrial metals. In March, copper-focused funds attracted $198 million, while a significant run-up in gold prices prompted some profit-taking. The VanEck Gold Miners ETF saw outflows of $710 million last month, though it has still attracted nearly $1 billion year-to-date. The fact that gold prices retreated during a geopolitical crisis drew attention; the market appears not to be seeking traditional safe-haven assets but rather betting that conflict will spur a real-economy response, requiring raw materials like copper, steel, and rare earths for energy security and infrastructure investment.
ETFGI data also showed nearly $6 billion in net inflows into oil and gas funds during the first quarter. Fund managers view this as further confirmation that investors are positioning for a broad-based infrastructure investment boom. Some investment managers find diversified miners like BHP and Rio Tinto particularly attractive because they sit at the intersection of multiple demand drivers. "Demand is robust for both copper and aluminum, especially amidst escalating tensions involving Iran," said Anix Vyas, a portfolio manager at Harding Loevner, who also noted that Rio Tinto, as a producer of both metals, stands to benefit from demand surges in data centers and industrial applications. Vyas characterized this shift as investors moving away from software companies vulnerable to AI disruption and towards firms with more durable competitive advantages, such as miners controlling critical minerals.
The relatively small size of metal futures markets means large capital inflows can amplify volatility, even if the overall trend remains upward. Last year, trading volume for metals futures like copper and aluminum on the London Metal Exchange totaled $21 trillion. In comparison, gold futures volume on the CME exceeded $25 trillion, while Nasdaq 100 futures volume reached $85 trillion and S&P 500 futures volume surpassed $135 trillion. The sharp swings in mining ETF flows demonstrate how quickly sentiment can change and how prone these markets are to reversals. The sector also represents a small fraction of global equity markets; the top five mining companies constitute just 0.4% of the MSCI World Index, whereas the top five tech companies account for 16.8%. Metals and mining products represent only 0.57% of the total equity ETF market.
Currently, major miners trade at enterprise value to EBITDA multiples of 7-8x, still well below the 14x reached during the 2008-2010 boom. This suggests significant potential upside if the supercycle materializes. "Copper sits at the nexus of all these themes and is severely under-supplied. I am convinced copper prices could double or even triple over the next decade, and returns from copper equities will likely far exceed gains in the spot price," said Charlie Aitken, Chief Investment Officer at Regal Partners in Australia. The firm is overweight mining and metals assets, managing A$21 billion ($15.05 billion) as of the end of March. A note of caution is warranted: while exposure to the mining sector can hedge against inflation risk, massive capital inflows could further drive up commodity prices. Combined with inflationary pressures from energy market disruptions linked to geopolitical conflicts, this could pose potential risks to global economic growth.
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