TD Asset Management execs highlight the role the triple Ds play in investment portfolios for institutional investors
Three key themes are reshaping the infrastructure and commodity markets, presenting both challenges and unprecedented opportunities for institutional investors. Those themes are digitalization, decarbonization, and deglobalization, which have become “a lightning rod for marketing,” says Carl Elia, essentially because of the significant growth they provide to investors’ portfolios.
Elia, who’s vice president and director of global infrastructure investments at TD Asset Management, and Hussein Allidina, managing director and head of commodities at TDAM, recently illustrated at a TD institutional symposium how institutional investors can leverage these shifts for higher returns and resilient growth across portfolios.
When it comes to digitalization, the exponential growth of data, described as the "fastest-growing commodity," is driving significant infrastructure needs. Elia highlights the demand for data storage and processing power is rising at an exponential rate. He believes this growth is transforming traditional infrastructure into a strategic investment category.
The issue, however, lies in power demand and transferring of data. Allidina explains that power demand, in the US and North America, broadly speaking, “has been shot to death.”
“Part of the reason is because we globalized,” he says. “We sent our production, our power demand, to China, India, etc. As we move away from conventional oil into EV, as we build up chat GPT and all that fun stuff, we need power, and we need to invest in the power grid. That’s very commodity intensive.”
For commodities, digitalization creates a strong demand for metals critical to data infrastructure, such as copper, which Allidina highlights as a standout investment opportunity. Copper, the second-best conductor of electricity, is essential for building data centers and extending the power grid to meet increased electricity needs.
However, its supply is strained due to limited recent investments in mining and processing. This supply-demand imbalance, particularly in commodities tied to digital infrastructure, underscores the need for tactical investing. "The availability of copper is going to prove to be a bit of a challenge in our ability to transition and transition quickly,” notes Allidina. “If I look at the basket of commodities that we're investing in, I think copper is the one that outperforms on a multi year view.”
Decarbonization, fueled by global commitments to reduce emissions, is pushing rapid expansion in renewable energy and electric vehicle (EV) sectors, but also requires substantial investments in supporting materials and technologies. Elia emphasizes that most of the near-term growth in infrastructure investments will focus on proven renewable technologies like onshore wind and solar energy. “This is where the growth is going to be over the next 20 to 30 years," he explained.
The transition to renewable energy also heightens the demand for specific commodities such as lithium, cobalt, and nickel—metals crucial for batteries and other energy storage technologies. However, dependence on these critical minerals raises geopolitical and supply chain risks, as many are sourced from regions outside of North America and Europe.
“As we transition away from oil to EV, we are far more dependent on places that produce and process the materials used in EV and [as a result], the concentration risk is greater than it is for oil,” notes Allidina.
Deglobalization, or the shift toward more localized supply chains, is altering investment priorities across infrastructure and commodities. This shift is partly a response to recent supply chain disruptions, trade policies, and geopolitical tensions. “Our team's been thinking a lot about transportation assets because supply chains are moving. We saw an opportunity around ports and have made several investments in ports because of the essential nature of them,” highlighted Elia.
Deglobalization is also expected to reshape commodities demand, as Western nations increasingly invest in domestic supply capabilities for critical resources. This may lead to higher commodity prices, as localized production can be less efficient and more costly. Allidina points to this inflationary pressure as a consideration for investors. “Deglobalization forces us to consider how we’re building and designing portfolios. That's where I think commodities and infrastructure become even more important in the inclusion of the portfolio,” he explains.
For institutional investors, the ongoing shifts in digitalization, decarbonization, and deglobalization are not merely passing trends but are likely to define the next few decades. While short-term political changes, such as the upcoming U.S. presidential election could alter aspects of the energy policy landscape, both Allidina and Elia suggest these larger trends will continue to shape investment opportunities over the long-term.
