With structural demand rising across energy, digital, and industrial sectors, commodities can offer more than just a diversification and inflation hedge. They may also present a pathway to differentiated returns. This paper outlines how investors can navigate geopolitical complexity, to access scalable, policy-aligned growth through Fidelity’s Transition Materials strategy. Our active, fundamental equity strategy aims to give investors access to a range of alpha opportunities across the theme.
Executive summary
Over the next quarter-century, commodity markets are expected to undergo a paradigm shift. Rather than a broad-based cyclical upswing, we anticipate a selective, structural supercycle anchored in three secular megatrends: energy transition, digitalisation, and urbanisation.
Central to this transformation are transition materials, including copper, lithium, nickel, uranium, rare earth elements and a handful of others. They serve as foundational inputs for electrification, renewable energy deployment, electric vehicle (EV) penetration, grid modernisation, and advanced manufacturing.
Our investment rationale is supported by a confluence of structural supply deficits and policy-driven demand acceleration, creating durable pricing support and long-duration return potential. We argue that investing in traditional instruments such as commodity futures and broad-based commodity indexes offer limited efficacy in capturing the upside of transition materials due to issues like market immaturity, illiquidity, and misalignment with thematic growth drivers. Generalist indexes also disproportionately weight legacy commodities, diluting exposure to transition materials. Historical performance data suggests that commodity equities are likely to outperform broad commodity futures and indexes over time.
In addition, we pose that an actively managed approach to investing in listed resource companies provides superior access and scalability, reflecting embedded optionality in reserves, operational leverage, and strategic positioning. Our active Transition Materials strategy benefits from a forward-looking view of the opportunity in the theme, as opposed to indexes, which are heavily skewed to legacy businesses with limited access to the profit pools of the future. Markets can change rapidly, presenting opportunities for active managers in this space to capture alpha, while innovation within the trend itself will also change the opportunity set.
By positioning early and thoughtfully, portfolios can benefit from both the alpha of scarcity and the beta of global decarbonisation.
This theme can also serve as portfolio protection against a more inflationary macroenvironment, as commodity equities have successfully done in the past. It offers investors a strong long-term growth story and useful macro hedge, with active stock picking focusing on companies with the ability to manage pricing most effectively.
Strategic investments in transition materials offer a strong growth path by integrating sustainability goals, geopolitical dynamics, and long-term investment objectives. By positioning early and thoughtfully, portfolios can benefit from both the alpha of scarcity and the beta of global decarbonisation. Fidelity’s Transition Materials equity strategy offers a well-suited vehicle for gaining exposure to this theme, bringing together our industry-leading global research and expertise in this space with experienced portfolio managers who aim to channel the best of these research ideas into alpha for the strategy.
