Their importance stems not only from their geological scarcity, but also from their indispensable nature and the vulnerability of their supply chains. Often lengthy and highly concentrated, these are also exposed to geopolitical tensions. In our view, this combination creates a long-term, global investment theme.
Structural demand, value chains under pressure
The energy transition is boosting demand for copper, lithium, nickel and uranium; the boom in data centres is intensifying demand for industrial gases and rare earths; and rising defence spending is behind the growing need for alloys, titanium, rare earths and specialised materials. Demand is accelerating, but supply is slow to adjust. Developing a mine, refining capacity or a processing facility takes several years, requiring substantial capital and a stable regulatory environment. Even the slightest disruption can cause lasting strain and reveal the strategic value of previously undervalued assets.
Compounding this complexity is the concentration of extraction, refining and manufacturing in a small number of countries, making access to materials a matter of economic and national security. With the bulk of these value chains located in China, sovereignty has become a central concern. The United States, Europe and their partners are seeking to onshore certain capacities, diversify their sources and rebuild value chains from mine to end product.
Companies are following suit: making equity investments, securing long-term supply contracts, recycling and building capacity are becoming key means of guaranteeing supply. This restructuring is creating opportunities across the entire ecosystem.
A unique universe
A material’s criticality is not measured solely by its abundance in the ground, but by what it makes possible. Certain materials have physical properties, such as electrical conductivity, resistance to extreme temperatures, lightness and magnetic characteristics, that state-of-the-art technologies cannot easily replicate. Given how difficult they are to substitute or recycle, their availability becomes a major industrial issue in its own right.
The challenge is even greater when these materials are not a mine’s primary product. Indium, gallium and tellurium, for instance, are extracted alongside other metals. Their supply therefore depends mainly on the production levels of the host ore, the existing processing infrastructure and separation costs. Low volumes, variable yields and the need for dedicated capital expenditure accordingly limit the ability of supply to respond swiftly. For investors, the scarcity of these materials is therefore not just geological, but also technical, industrial and economic.
Opaque markets, at the heart of industrial power dynamics
Added to this complexity is market opacity. Many of these materials lack continuous price quotations, deep market liquidity or standardised data. Transactions are conducted over the counter, based on specific parameters of purity, form or origin, making prices difficult to compare. Understanding these markets requires expertise at the intersection of geology, chemistry, process engineering and geopolitics. As equity investors, our objective is not to speculate on commodity prices, but to identify the entities that control supply and the players capable of delivering long-term resilience. We do not invest in raw materials themselves, but in the companies that extract, process or secure their availability.
In our view, the heterogeneous nature of this sector calls for a granular analysis of the investment universe. The trajectories of critical materials can diverge significantly, even when tied to the same structural transformations. As these assets are exposed to numerous operational risks, we believe that active management is essential. Unlike passive, index-tracking approaches, which can dilute risk and obscure underlying sovereignty issues, active management seeks to identify key players with strategic assets, operational visibility and a central role in value chains. In this context, stock picking is essential.
The energy transition, artificial intelligence, defence and sovereignty policies are currently reshaping resource hierarchies. For long-term investors, the challenge lies in identifying those materials whose irreplaceable properties, inelastic supply and strategic importance are not yet fully reflected in the market. Moving beyond a traditional view of the commodities cycle is the key to unlocking the full potential of this universe.
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Disclaimer: The data and opinions provided by LFDE, as well as the sectors and securities mentioned, are provided for information purposes only and do not constitute an offer to buy or sell a security, investment advice or financial analysis. Past performance is not an indication of future performance. The strategy involves a risk of capital loss, equity and market risks, as well as risks associated with emerging markets. Investors are reminded that the units/shares presented may not be marketed in their country of residence. For more information on its features, risks and fees, please read the regulatory documents (KIID, prospectus, etc.) available at www.lfde.com.
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