CIO Academy - Energy and Resource Security: the structural opportunity goes beyond the current disruption

Highlights: In recent years, the energy transition has combined with the rapidly rising need for electricity in our data-led economy and with the energy security imperative amid global conflicts. Together, these factors are driving structural demand growth for materials, energy and infrastructure. Our Energy & Resource Security theme seeks to capture this structural growth while also adding resilience to more frequent geopolitical shocks. By focusing on the energy and infrastructure layers of the AI ecosystem, it provides more stable and less volatile AI exposure than models or chips do.

• The Middle East conflict exposed our dependency on critical energy sources and materials, and our vulnerability to choke points. Consumers are already reacting, with EV sales up 80 per cent YoY in Asia Pacific in Q1, while solar panel exports from China to Southeast Asia are up 150 per cent. Businesses are managing the risk by building or replenishing inventories, which makes sense as a rapid return to normal is unlikely (Brent crude oil is priced above USD70/bbl all the way through 2030). Other businesses are diversifying energy sources and switching to electricity
• Electrification is, in fact, a structural trend in our data-led economy, powered by the rapid build-out of data centres, China’s industrialisation, the need for cooling and electric vehicles. All of this requires a rapid acceleration of electricity generation, investment in the grid and in batteries. And this, in turn, creates demand for metals
• To tap into all of this, we like broad-based exposure to companies involved in batteries, utilities, nuclear, oil and LNG. The theme is not just opportunistic but has performed strongly around geopolitical risk events in recent years and benefited from structural demand growth
• Beyond the clear investment rationale on its own merits, our theme offers two additional benefits. First, many investors are excited about AI but worry about picking the wrong stock among the hyperscalers, and about fluctuations in token demand. Investing in the energy or infrastructure layers of AI’s 5-layer cake should offer comparatively lower risk and a broader opportunity set. Second, in a multi-asset portfolio, commodities and infrastructure can help diversify bond and equity exposure for investors worrying about inflation or equity volatility