Three years on, the case for Transition Materials is even stronger

The past three years have reinforced our conviction that commodities linked to the technology revolution and the transition to a low-carbon economy represent one of the most compelling long-term investment themes.

Both market performance and fundamental trends have confirmed the direction of travel we identified when launching our strategy in May 2023. The build-out of renewable-energy capacity, accelerating electrification and the rapid growth of AI-driven infrastructure all increase demand for critical materials. At the same time, supply remains constrained in many markets.

Since inception, LOIM's Transition Materials has demonstrated an ability to navigate these shifts. As one of the few strategies focused purely on transition commodities, with no oil and gas exposure, we believe we are well positioned to continue harnessing the opportunities. 

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Validation of our approach 

Transition Materials provides futures-based exposure to the range of commodities critical to the future global economy. The strategy has outperformed its benchmark since inception (see Figure 1)¹, reflecting the value of this approach. 

Our strategy also offers an inflation hedge and a diversified source of return – with low correlations to fixed income and global equities – while keeping a strong commodity footprint. Historical correlations have been approximately 0.1 to the Bloomberg Global Aggregate Treasuries Index, 0.3 to the MSCI World Index and 0.7 to the Bloomberg Commodity Index².

FIG 1. Transition Materials strategy composite³ gross 3-year performance vs benchmark

2026 has provided short-term challenges. Evolving geopolitical developments, trade tensions and policy uncertainty have periodically weighed on markets and sparked volatility across transition-related assets. 

Read also: How is the Iran conflict impacting energy-transition materials?

Nonetheless, the strategy has remained resilient, supported by strong contributions from materials ranging from copper and aluminium to lithium and nickel, among others. Demand drivers including AI-related infrastructure needs and the continued expansion of battery production underscore the long-term investment case – which extends well beyond developments in oil and gas markets.

The results reflect an investment approach grounded in our conviction that resource demand is evolving across sectors. Three years ago, we repositioned our flagship commodities strategy to launch Transition Materials and capture the opportunities we believed would emerge.

FIG 2. Transition Materials summary risk indicator⁴

A fundamental shift in our commodities investment philosophy 

On 2 May 2023, only a few days before the World Health Organization declared the end of COVID 19 as a global health emergency, LOIM’s Commodity RP (Risk Premia) strategy was transformed into Transition Materials. In hindsight, the timing coincided with the emergence of a new geopolitical and economic regime, further reinforcing our views. 

The foundations of the Transition Materials strategy were established well before 2023, however. LOIM had progressively incorporated analysis of long-term economic system changes across asset classes, including equities thematic strategies and multi-asset portfolios.

Strategic assets underpinning the transition

Commodities represented a natural extension of this thinking. The recognition that the transition to a low-carbon economy would require massive amounts of raw materials prompted a rethink of traditional commodity investment frameworks.

Rather than treating commodities as a cyclical asset class driven primarily by global growth, we began to view them as strategic assets underpinning structural transformation. 

Through extensive collaboration with our Roadmap Research team, we gained insights into what would fuel future demand, in particular:  

• Electrification requires exponential increases in metals such as copper and aluminum
• Renewable energy technologies rely on critical minerals, including lithium, cobalt and nickel
• Grid expansion, storage solutions and digital infrastructure further amplify material intensity.
   

It became clear that structural supply constraints would likely coexist with sustained demand growth, creating favorable conditions for price appreciation in specific commodity segments.

This led us to narrow the focus of the investment universe to commodities directly linked to the energy transition and broader system changes. The new framework builds on our expertise in systematic, risk-based investing while introducing a fundamentally driven allocation.

On geopolitics and resource security

Since the repositioning of the strategy, the commodity landscape has changed markedly. Cross-border tensions, most notably the Russia-Ukraine conflict and instability in the Middle East, have exposed vulnerabilities in global supply chains and heightened volatility across energy and raw-material markets.

At the same time, governments have increasingly prioritised energy and resource security alongside decarbonisation, driving greater economic fragmentation, resource nationalism and industrial-policy intervention. As a result, security of supply has become a key driver of commodity markets, investment flows and pricing dynamics.

Electrification, renewables and AI 

Supply-side constraints are colliding with powerful demand drivers.  Electrification, renewable-energy deployment, and investment in grids and transmission networks are pushing demand for key metals higher. AI is amplifying this trend, as data centers require large amounts of both energy and materials. 

Demand for transition materials now extends across the broader economy, amplifying its scale and persistence.

Copper exemplifies this dynamic, given its central role across all electrification pathways – from power generation and distribution to electric mobility and digital infrastructure. Demand is further supported by rapid deployment of battery storage systems required to stabilise increasingly renewables-heavy grids.

FIG 3. Copper: the electrification metal of choice⁵

Price implications and investment outlook

The combination of these forces creates a supportive environment for transition materials. Key factors underpinning our positive outlook include:

• Limited short-term capacity to expand supply, due to long project lead times. For example, new mines can take more than a decade to develop, so supply growth remains slow even as demand accelerates
• Rising production costs associated with the time and processes required to conform with environmental and regulatory requirements
• Increasing competition for resources among major economies.

Conclusion: positioning for the next decade

In our view, the Transition Materials strategy is aligned with one of the most significant economic shifts of our time. The past three years have reinforced our conviction in this opportunity, amid rising demand for critical materials, resource nationalism and the reconfiguration of global supply chains. 

By combining targeted exposure to these structural trends with the discipline of a systematic investment approach, the strategy seeks to provide investors with access to the materials underpinning the future economy. Through commodity futures, it focuses on the fundamental supply-demand dynamics shaping these markets, rather than the operational outcomes of individual companies.

Three years after the strategy's transformation, our conviction that transition materials will continue to shape global markets and long-term investment opportunities has strengthened – and we will continue to express this through our purpose-built strategy.