Canadian commodities stand to benefit as demand goes multi-year for institutional investors, says Chris McHaney
The last time commodities staged a sustained rally, the dot-com bubble had just burst and capital was rushing to catch up with years of neglect.
Now two decades later, history seems to be repeating itself, says Chris McHaney, EVP and head of investment management at Global X.
“The environment we're in now is actually very similar to the early 2000s if you think about it. Back then, a lot of investment in capital dollars were going into technology companies. That means other areas are probably being underinvested in,” said McHaney, noting the past few years of capital markets focus on the Magnificent Seven and the broader tech trade have left commodity producers short on investment.
Technology demands commodities
But the difference this time, McHaney suggests, is that “we're actually at a bit of an intersection where technology is now demanding those commodities," he said.
“We need to build data centers and that needs copper, that needs things like energy to run the data centers. So we have this confluence of events where capital allocation is going one way that's intersecting with commodities now so you're seeing this real rise in prices overall.”
McHaney acknowledged that the heavy tilt toward technology has been justified because that's where returns were. But as portfolios and indices grow more concentrated in a single theme, the case for rebalancing strengthens as he believes commodities offer a natural counterweight because they tend to behave differently from equities.
“Investors are looking for ways to diversify, and commodities have been a great way historically to do that because they tend to have a lower correlation with the rest of the market,” he said. “By adding something in [the portfolio] that doesn't move in the same way as other things, you're increasing the efficiency of the overall portfolio and you're spreading out the risks that are involved in there as well.”
McHaney suggests the energy story predates both the AI boom and the current geopolitical tensions. Even before those demand sources surfaced, the world was already facing a structural increase in power consumption. He prefers the term "energy evolution" over "energy transition," pointing to what he describes as a doubling of global energy demand by 2050.
For a time, the green movement made reinvestment in conventional energy a reputational liability, starving traditional producers of research and development dollars needed to improve carbon efficiency. But now, he sees that dynamic easing.
"We're seeing a bit of a normalization there where, yes, we want to be green, we want new sources of energy, but it's not turning off investment in traditional energy," he said.
McHaney sees broad, multi-year demand building across commodities, driven by two forces that are reinforcing each other. The first is de-globalization, noting as the US pulls back from underwriting global security and trade infrastructure, other nations are scrambling to secure their own supply chains, build up defence capacity and compete independently in areas like artificial intelligence, McHaney said.
That fragmentation multiplies demand rather than one coordinated allocation of resources. As a result, every country is trying to lock down the same materials simultaneously.
"If you can assume we were all nice and friendly at a global scale, we can probably allocate who gets what resources. But now we have every country almost demanding all of it for themselves because they want to make sure they're secure in their own right," he said.
The second force is the AI build-out itself. Data centres require copper, energy, uranium and other power sources at scale, turning the technology sector from a competitor for capital into a direct consumer of the commodities it helped starve of investment. McHaney expects both demand drivers to take multiple years to work through.
Canada stands to gain
To that end, McHaney sees Canada as well positioned for what's ahead, noting the country holds significant reserves across oil and gas, gold, silver, copper and uranium, and many of the leading producers in those spaces are headquartered here.
Moreover, each commodity carries its own supply-demand profile and timeline, and he cautions that none will move in a straight line as sharp rallies followed by sell-offs are normal within a longer upward trend.
Still, he sees a long-term bull case across the board.
“These things don't tend to go in a straight line because they can go up very quickly followed by a sell off, but that doesn't mean it's not going to keep going up over the long term,” said McHaney.
“Canada has a lot of these things so that bodes well for Canadian investment. That can potentially improve the Canadian economy overall so you could see other beneficiaries around that,” he added, noting how stronger commodity revenues improve corporate balance sheets, which can feed through to financials and banks, broadening the economic lift beyond energy and materials alone.
A diversified basket of commodities
As for investors unsure which individual commodity to back, McHaney suggests a diversified basket approach, what he recommends as a single allocation that captures the full commodity spectrum rather than forcing a bet on any one metal or energy source.
He believes that structure also adds diversification within the commodity sleeve itself, since the various components won't all move in lockstep.
“I would suggest investors to take a long-term approach to it and even though the commodity equities themselves are of higher volatility than the broad market, that lower correlation actually improves the efficiency of your portfolio by allocating to these within the context of a broader portfolio,” explained McHaney.
