transformative-times

Portfolios need to be
‘ARMMD’ for the future

05 April 2022
Newsletter by the Private Wealth Management Team
Reading time: 3 minutes


River bifurcation — a single river stream separates into several distributary channels.

Bifurcation — a move from unipolarity to bipolarity or even multipolarity — is creating new competing major power blocs and altering the existing world and economic order. The spillover from this transformation is broad, including the reconfiguration of global trade, especially for critical commodities.

Commodity prices have historically exhibited multiyear cycles. However, in recent history, these cycles occurred within two waves of globalization. The first wave of globalization was triggered by the post-WWII new world order period, and the third wave at the start of this century as China entered the World Trade Organization. According to a recent World Bank report, Global Economic Prospects – January 2022, “On average (over the past five decades), from peak to peak, cycles lasted almost six years.” Indeed, the past five decades have been an era of intense waves of globalization. However, as the world undergoes this transformation into apparent major power blocs, globalization is being transformed, likely extending the commodity price cycle considerably.

Last year we highlighted our concerns about reconfiguring the global world order and globalization. We argued that globalization is transforming into what we like to call “gated globalization.” This form of globalization is primarily directed by security concerns, not efficiency (cost and time). Thus, we expect higher prices and the current commodity price cycle to be in place for an extended period.

ARMMD Portfolio startegy

Moreover, a bifurcated world will trigger more significant concerns about national economic security. We expect national economic security strategies to broaden and the deployment of such strategies to accelerate in a world that is forming clear major power blocs. This will accelerate and expand national economic security strategies, encompassing all parts of the economy deemed of “national economic security” interest. Agriculture, renewable energy, critical minerals, and metals are universally understood as being of “national economic security” interests. Undoubtedly, not all countries have the ingredients for independence and self-sufficiency on critical commodities. Therefore, nations will have to compete for critical supplies, helping to keep a favorable price cycle in place.

In addition to the forces of power blocs and gated globalization, we are also incorporating the implications of climate events, which are predicted to occur at a greater frequency. Climate events and changing weather patterns can significantly disrupt the production and supply of critical commodities, whether it is due to drought, floods, fires, or other events. Finally, global climate agendas also contribute to the upward price pressure on commodities, minerals, and metals that are critical for achieving agreed-upon climate targets.

In this historical transformational period, we have introduced a new investment strategy focused on agriculture, renewable energy, minerals, metals, and defense, ARMM(D)1. This strategy, we expect, will allow portfolios to benefit from a bifurcated, gated globalization new economic world order.2

See our asset class views.


1 ARMM or ARMMD? At GMG, we continue to avoid asset allocation to the defense sector whenever possible. Defense remains on our GMG Exclusion list. However, some firms are reconsidering the Defense sector and removing it from their exclusions lists.

2 It must be noted that while allocation is not a question of market timing in our assessment above, a prudent investor must always consider pricing, market positioning, sentiment, technical and other factors when initiating an allocation of an asset into portfolios. Prudent investors often tend to “leg in” and make allocations piecemeal regardless of conviction.


Important notice

The information provided herein constitutes marketing material, that may contain general information, and has been prepared by personnel in the GMG Investment Solutions SA or GMG Institutional Asset Management SA (collectively “GMG”) and is not based on a consideration of the prospect’s circumstances. This document reflects the sole opinion of GMG or any entity of the GMG Group and it may contains generic recommendation.

Non-Reliance: This document does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of individual clients. Before acting on this material, you should consider whether it is suitable for your circumstances and, if necessary, seek professional advice. GMG is not soliciting any specific action based on this material it is solely intended for illustration purpose.

This document is not the result of a financial analysis and therefore is not subject to the “Directive on the Independence of Financial Research” of the Swiss Bankers Association.

This document is neither a prospectus as per article 652a or 1156 of the Swiss Code of Obligations, a listing prospectus according to the listing rules of the SIX Swiss Exchange or any other exchange or regulated trading facility in Switzerland, nor a simplified prospectus, key investor information document or prospectus as defined in the Swiss Federal Collective Investment Schemes Act. Any benchmarks/indices cited in this document are provided for information purposes only.

The accuracy, completeness or relevance of the information which has been drawn from external sources is not guaranteed although it is drawn from sources reasonably believed to be reliable. Subject to any applicable law, GMG shall not assume any liability in this respect.

Risk Disclosure: This document is of summary nature. The products referred to herein involve numerous risks (including, without limitations, credit risk, market risk, liquidity risk and currency risk). In respect of securities trading, please refer for more information on such risks to the risk disclosure brochure “Risks Involved in Trading Financial Instruments – November 2019”, which is available for free on the following website of the Swiss Bankers’ Association: www.swissbanking.org/en/home.

Material May Be Outdated: This material is produced as of a particular date. Accordingly, this material may have already been updated, modified, amended and/or supplemented by the time you receive or access it. GMG is under no obligation to notify you of such changes and you should discuss this material with your GMG relationship manager to ensure such material has not been updated, modified amended and/or supplemented. The market information displayed in this document is based on data at a given moment and may change from time to time. In addition, the views reflected herein may change without notice. No updates to this document are planned. In the event that the reader is unsure as to whether the facts in this document are up to date at the time of their proposed investment, then they should seek independent advice or contact their relationship manager at GMG.

Information Not for Further Dissemination: This document is confidential and should not be reproduced, published, or redistributed without the prior written consent of GMG.


Contact our investment experts.

    *Mandatory field