In the Energy News Beat – Conversation in Energy with Stuart Turley interviews Wasif Latif, CEO & Chief Investment Officer of Sarmaya Partners, about thematic investing and the importance of identifying long-term market themes. They discuss the current market focus on the “Return to Tangibles,” highlighting the growing importance of energy, commodities like gold and copper, and the implications of geopolitical risks. They also touch on the challenges of the energy transition, the significance of traditional energy sources, and strategies for preserving and growing wealth in a shifting economic landscape.
Thank you, Wasif, for stopping by the podcast. I am looking forward to our future discussions on investing in this market. – Stu
Highlights of the Podcast
00:00 – Intro
00:50 – Thematic Investing Overview
01:12 – Historical Market Themes
04:49 – Current Market Theme: Return to Tangibles
08:49 – Energy Transition and Commodity Supercycle –
12:15 – Investment Strategy and ESG Impact
14:36 – Future Market Risks and Gold as a Hedge
19:01 – Reindustrialization and Commodities Demand
25:17 – Long-term Investment Perspective
26:51 – Closing Remarks and Contact Information
Helpful Links:
https://www.linkedin.com/company/sarmayapartners/
Full Automated Transcript:
Stuart Turley [00:00:07] Hello, everybody. Welcome to the Energy News Beat podcast. My name Stu Turley, president and CEO of the sandstone Group. It is a crazy market out there. Not only do you have to rely on experts, you’ve got to find the deep dive experts that know actually what they’re doing out there. My next guest has been on Bloomberg. He’s been on CNBC. He’s managed several different groups out there, one of them with 50 billion in different funds and another one with 35 billion in funds. I have one of Latif and he is here as CEO. How are you today?
Wasif Latif [00:00:44] Doing well. Great. Thanks to it.
Stuart Turley [00:00:45] I’ll tell you, you’re over there with some area partners. Tell us what you got going on over there.
Wasif Latif [00:00:50] Well, thanks for having me. So, Samir Partners is a firm where we focus on thematic investing. And when we identify a big picture theme. And we’ll get into that a little bit, we then create a portfolio that is very concentrated and only focused on the drivers of that theme, because our work shows that that does really well over the long term over the markets.
Stuart Turley [00:01:12] So a theme investment, what does that mean? Because I heard that and I went through your slide decks. But I want you to describe that out for us.
Wasif Latif [00:01:20] Yeah absolutely. So you know, I’ve been in the business for over 25 years managing a variety of different portfolios, and the culmination of my work and research has led me to this type of a portfolio, which is every market cycle is led by a certain type of a theme. That’s a big, big, broader theme that’s generated by some fundamentals and some monetary policy impact. And all of those combine to significantly outperform the market in that cycle. So if you go back in time, this repeats again and again and again with different types of investments. So the chart that I have that I built, you know, looking back since the 1970s onwards covers that. And so for example, in the 1970s, the big theme that led the market was investing in oil and gold variety for a variety of different reasons that we may recall from the 1970s, in the 1980s. The big theme was investing in Japan, because it significantly outstripped and outperformed the rest of the world in terms of the performance of that market and the currency coming from Japan, the yen, and so on and so forth. And so in the 1990s, the big theme towards the second half of the decade, which basically dominated that time frame, was the internet and everything attached to technology from that standpoint. And so each era or each large market cycle is led by some type of a theme. And, you know, we had the data that we were able to find since the 70s. But if you go back even further in time, this is something that continues to repeat and rinse and repeat over time, albeit with different types of investments and themes. So, for example, in the 1800s, the railroads was the big theme. And we had many, many railroad companies do extremely well. And eventually there was overbuilding. And, you know, that that came to an end in the 1920s. And in the 1940s, it was more about radio and automobiles and things of that nature. And even if you go further back to prior times, you know, the canals in the, in the UK, in Great Britain were a big theme many, many, many years ago. And so this typically tends to repeat as the market digests and works through whatever is the current major theme. And then that evolves into, you know, the next one that sets the stage for the next one. So, so where are we now? I’m guessing that is the question. So, you know, currently what we think where we’re we’re experiencing two things. One is the big theme that’s dominated the market over the past several years has been mega-cap big technology companies doing extremely well because they’ve been growing, because they are are gaining market share in the global market that didn’t even exist before. And so that’s done really, really well. We think that that’s closer to its end as a major theme. And the next one, which we think started around 2021, is going to be a commodity supercycle led by energy, led by gold. And those two areas are going to help build this theme that we’re calling The Return to Tangibles is a nice, catchy phrase about humankind returning back to sort of the the commodities that we seem to have forgotten over the past several years. And, and that is going to, in our view, dominate the next market cycle. And so that’s the portfolio that we build.
Stuart Turley [00:04:50] I tell you why this this is exciting because this is really feeding right on into this is explained. My head just exploded for our. Podcast listeners. I’m over here going, this is cool. I’m excited because when you’re taking a look at the the I, the, you know, the energy transition has been, you know, all this money being funneled into the renewable energy and, and everything else and it’s failing. And so now we have this return to tangibles commodity supercycle really is explaining because AA is the death of net zero even because when you have AI, you have all your super tech that you were talking about with now needing more and more and more power. This is explaining a lot. I mean, to me, I, I’m excited.
Wasif Latif [00:05:41] Yeah. So that’s part of our, our thesis as well that the market got ahead of itself in thinking about the renewable side of energy. And in hindsight, there was probably a lot of lower cost of capital that help a lot of these companies get off the ground and do well. And and the technology now is seeing some challenges, whether it’s intermittency problems or the ability to meet the demand needs at the peak hourly rates and things of that nature. And not to mention there are also some ecological issues as well when it comes to renewables and just in building some of the hardware that’s needed. And so what has happened over that time is, you know, we’re investors first and foremost. We’re looking at where the opportunity is and where we see the next upside. And and opportunity almost always is usually born in something that’s attractively valued. That’s then beginning to show some degree of pick up in growth and demand. And so since 2021, we’ve seen a return of oil rising up again and and showing to the world that it’s still needed. And so the transition, first of all, we think it’s not going to happen anytime soon, anywhere near the time frame that a lot of folks have projected. And it may take many, many, many years, if not decades for us to get there. And in the meantime, the energy space, the traditional, the old carbon based oil and gas is a great, attractive place to be because they’ve been ignored for a long time and because they’ve been ignored by the market and investors. They’re very attractively priced. And on top of that, now you’re seeing the momentum of their earnings beginning to pick up because the price of oil has perked up and it’s relatively stable. And you’re coupling that with the global demand for oil continuing to be stable but also continuing to grow. So when we look at the demand for oil, it just chugs along. It just continues to grow and increase over time. It hasn’t declined. It hasn’t abated. And and our view is that despite the other buildout in other areas of energy, that’s going to be in place. And the other piece that you mentioned was AI, because of the AI energy needs between running data centers, between all of the energy that’s going to be needed to power those computers, you’re going to need a lot of energy. And I think the big tech players are realizing that. And as a result, there’s been this renewed interest in uranium and nuclear type of energy as well, because it is very clean. It has one of the highest efficiency rates. And, you know, it produces so much more energy for your bang for your buck, if you will, that it far outstrips, you know, all kinds of energy sources in terms of what it can produce. And so there’s this new effort underway where uranium is high in demand. There are countries around the world are building many, many more nuclear power plants. And we can get into some of the details as well on that.
Stuart Turley [00:08:49] Oh you bet. I think this is a good point. I’m going to interject here for our listeners, for our podcast listeners. Mr. producer, if we could bring up the slide for the second one, the portfolio framework applied. This says a lot right here in your in your in your thought processes here when you’re talking about uranium oil and natural gas, because without low cost energy you see deindustrialization happening. You see you see it failing in Germany. Germany is industrializing. So it’s California. So it’s New York. And we’re seeing that the New York is is they pulled every excuse me, but they pulled a Dick Cheney and shot themselves in the foot by closing their nuclear reactors. And now there’s a move to look at getting nuclear reactors going around the United States and bringing up our fleet.
Wasif Latif [00:09:43] Yeah, yeah. So you bring up a really good point to do in that. And I know we, one of our subthemes of the Return to Tangibles broad theme is energy is life, and energy is life is grounded in the idea and actually the the proven. Historical information that all human progress has been grounded and foundationally built on cheap, abundant energy. You go back to prior economic booms, economic cycles, countries doing while region, regions doing well. All of that has been grounded in the availability of cheap, abundant energy. And that’s been the sort of this foundation that humankind has built on, on its progress. And so the availability of that becomes really important. And that’s why I like the phrase return to tangibles, because I think in this virtual world that we’ve been in for the better part of the last 15 years, we seem to have as, as a collective idea, seem to have forgotten the need for the material of things that we have that have built this, this economic progress that we have. And so that’s really important. So Germany is a great example. You bring it up Germany industrial powerhouse the the engine of Europe. And in their desire to, you know, change things around and and focus more on renewables and and and push out their energy independence to energy dependance for natural gas coming in from overseas and things like that, that really has hurt them. And so they are experiencing some of that deindustrialization. And at the core of it does come back to the abundance, the availability, I should say, of abundant and cheap energy. So that’s a really, really good point to, to build on. So again, it comes back to oil and especially natural gas in the US. It’s cheap, it’s abundant, and the rest of the world actually needs it. There’s a there’s a price difference between the price of oil and natural gas in the US versus the rest of the world. And as this market becomes more and more globalized, US exporters, natural gas, which they’re building, export capabilities, are going to do well. And then coming back to the nuclear side, the nuclear build out is is going to be really important. And to your point, there are many countries and jurisdictions that are reversing course from prior ideas that we need to denuclearize to man. We need to ramp up and and rebuild our nuclear energy producing capabilities.
Stuart Turley [00:12:16] You know, when you’re talking about an investment fund of this magnitude and taking a look at it, ESG has done actually a great thing for the oil and gas companies, in my opinion, is that they did learn they can’t just get all this money and then go drill and then not give any money back to their investors. So are you looking at the commodity supercycle? Not only, you know, you’re looking at how the management of that company is in investing and in being good stewards of their resources that they have. But how do you determine what is a good return on your investment back into your fund? How do you take a look at that number?
Wasif Latif [00:13:00] It’s a really good point, Stewart. So you know the old phrase that there’s not a paint. There’s nothing like a good teacher has paint. And so, you know, I think the, the last 12 or 15 years low rates and the, the challenges that the traditional energy and even mining and gold mining companies have seen and their commodity prices being under pressure, as well as having less funding because of the ESG movement from the marketplace. All of that has been very painful 5 to 6 years to seven years for these companies. Right through that pain, they have learned to be more efficient. And so they they now are not, in our opinion, going to start drilling and mining everywhere that they see that they can do. They’re going to be better stewards of their capital. They’re going to be mindful of their costs. Now we are in a inflationary world. And so, you know, and that’s part of one of our sort of subthemes as well, is that we entered a new era of higher inflation and interest rates. And so that also means that their costs are going to be elevated as well. So they just need to be really mindful of their costs, the capital that they’re able to raise. And so that’s really important. So what we do is we look for companies that are leaders in that space who have the ability to raise capital, who have the ability to be good stewards of that capital and invest in a broad way across the world. So we’re buying some of the big leaders, companies in, in both oil and gas, as well as in mining, broadly speaking.
Stuart Turley [00:14:36] You know, as long as we’re sitting here going through this, I can see that this is going to need to be a series on several different topics, because I’ve got about 9000 different questions that are cropping up, and I can see that we’re going to need to do a deeper dive on some of these things, because our listeners are really wondering, what are we going to do with the stock market? Is it going to crater? Is it going to under a Democrat rule or, you know, is it where do I put my money that I am going to be getting things back? And when you have the deindustrialization of Germany going on and then you have the petrodollar, the Saudi Arabia did not sign again, who’s buying our treasuries. And so where do people put their money is, I think, a very big question. This is important.
Wasif Latif [00:15:29] I you know, it’s always an important question. I think, given that we might be going through a change in leadership on, in the marketplace in terms of what may be occurring going forward. It’s an even more important question now. So to answer your first question, you bet you’re on. Let’s do a series. We’d love to come back and talk about that stuff. But just quickly coming back to, you know, the points that you brought up. So as I mentioned, you know, our our overarching theme is a return to tangibles. Right underneath it, we have some subthemes. And I mentioned one which was energy is life as I as I walk through which the exposures are broadly in oil, gas and uranium. And then we have a couple of other subthemes. One of those is the that we are now in an era of elevated geopolitical and fiscal risks. And when you get into that type of an era or that type of an environment, historically speaking, gold comes back to the front as a good hedge against those type of risks. Right. And we have a healthy allocation to gold and gold miners in our portfolio now because of that. And generally, the way to think about it is, you know, when you are in an inflationary era, gold holds up better as the sort of the fiat currency or the paper currency might be losing its purchasing power and value through inflation. But at the same time, when you have geopolitical risks, the gold acts as a good hedge against that, as a safe area, as a safe haven. And then lastly, since 2022, when the US weaponized the US dollar in the war in Russia and Ukraine, when that happened, that sent a message to the rest of the world that has had their reserves largely in US dollars. And the message was your dollars are at risk. And so what they have been doing since and there’s a chart we can show in our next conversation when we talk about gold in detail is in 2022, there’s a marked jump in the amount of gold that is being purchased by central banks around the world, and they’re doing that as a source of diversification to diversify away from their dollar and treasury holdings because they want to have they don’t want to have that kind of a risk on their balance sheets, and they want to be able to have gold, which, as you know, doesn’t have any counterparty risk. And so again, that that’s something is is pretty important to us in our portfolio that the other one that I’ll mention is one that focuses on the idea of reassuring friendly shoring or the re industrialization of America. Because there is this realization. There is this realization that, you know, if we continue to have a trade war or tariffs and challenges against China as an adversary, then we need to rebuild some of those capabilities in-house. And and that actually that’s happening to some degree with certain companies either rebuilding capabilities, beginning to rebuild capabilities here in the US or in friendlier jurisdictions. And all that means is there’s going to be a need for rebuilding all that infrastructure. And whenever you need to build infrastructure, one of the core components is copper. And so copper is also a big part of our portfolio as a theme. And then you’re going to need broader commodities to be able to build those factories and rebuild those capability. And and so that’s another subtheme in our portfolio as well.
Stuart Turley [00:19:01] Huge. Especially with, trying to repair the grid and in trying to add anything in there, if you’re going to electrify everything, you’re going to need copper and you’re broad commodities on your on your chart. You were talking about what kind of broad commodities are you talking about on that when you’re talking about reshoring and industrialization.
Wasif Latif [00:19:22] So it’s, broadly speaking, all of the metals that come into play obviously means the energy side that comes into play, all the stuff that you need to build factories, the stuff that you need to build buildings, right, things of that nature. And then ultimately the world is growing and it’s going to continue to develop. So countries like India, for example, right there on continuing to grow and they’re on the path to industrialization. They have targeted that. They’re going to go from a $3.5 trillion economy to a $7 trillion economy, so double by 2030. And. Part of that doubling is a big spend on infrastructure. And I don’t I don’t care who’s the construction company or who’s getting the contract or who’s doing the building. They’re all going to buy copper. And so copper is a big part of our portfolio. So to your point, you know, we talked about oil as a foundational commodity. I think copper is right up there with it between oil and copper. You need those two as the under underlying foundation for anything that you’re going to build, whether it’s industrialization re industrialization or building a future for, technology and AI and data centers. So it all becomes really important. And if you continue to walk slowly, I think it’s going to be slower, march towards electrification towards, you know, other kind of technologies. Then copper also comes into play as well.
Stuart Turley [00:20:48] This is fascinating because I this is brilliant and this is articulated in a way that I, I’m really getting excited. I got my head spinning on where to move some money after this phone call, but we sit back and take a look at the industrials. You’re talking about the industrials and the you’re spot on with everything. And I’m sorry. I’m getting excited because I’m thinking about all the other questions I have for you right here. And that is when you take a look at the gold. Is is only as a mineral being mined. It can only increase in value. 4% basically is about what they can find per year and without having something really come in. So you’re you’re really doing quite well. You have bricks coming out where bricks is coming out, and they’re moving to a gold standard in their own financial systems. Coming around India’s growth, that is a staggering number and an open market. But copper demand is going to be there. Doesn’t matter what you’re going to do, you’re going to need the copper. Are there other minerals or other things in there that are hot buttons for you as well?
Wasif Latif [00:21:58] Those are the larger ones. There are smaller ones that, you know, move up and down. Part of the part of the challenges we’re trying to target. We want to target the big, big players when it comes to commodities in this space. Because as the as our initial big theme chart shows, we’re in it for the long term. This isn’t a you know, I’m going to be in it for three months and six months or nine months, and I’m going to get out. This is a multi year cycle. And usually these types of cycles, you know, commodity cycles or even the ones that we that I talked about earlier in other areas they generally tend to last anywhere between seven to 10 to 12 years depending on sort of what’s happening specifically. And so when I look forward, I don’t know exactly how, for example, things like lithium are going to be doing or, you know, some of the other smaller companies are going to be doing, and they may have a lot of volatility to it. So we may we might, you know, tiptoe into some and get into out in some of them. But ultimately the big ones are the ones that we’re focusing on. The other one that I mentioned is a small small position right now because we think that’s something that’s just going to very, very gradually become important is fertilizer is and that is nitrogen. Because as the world’s population grows in the emerging countries and their economic growth continue, they’re going to demand more and more higher quality and higher quantity of food. And so that’s going to need, you know, good fertilizer and nitrogen to feed people. But that’s that’s much further out. And so right now the big focus is on things like the the big impact type of commodities are going to last for these multiple cycles.
Stuart Turley [00:23:35] Your thought processes on this whole topic is just cool, because if you take a look at the fertilizer plant, it was it BASF out of Germany that was also just closed, and they closed their steel plant because of the gas that they were relying on from Russia. And by the way, Europe is still buying lots of Russian natural gas. Did I just say that, you know, you sit back and kind of go, your thought process is unique for what I’ve seen in the mainstream media, and I really applaud your whole thought process on this.
Wasif Latif [00:24:08] Thank you. Appreciate it. And again, this comes back down to we wanted to create a portfolio and a strategy. And basically the way we think about the world is how we want to invest our own money. And so right. This is born out of, you know, having years of experience. And then just looking forward to thinking through rationally, logically, over a longer term period what might work. And ultimately, you know, in the long run, the attractiveness of an asset does depend on the starting point of valuation. And all of this stuff right now is, in our view, still pretty cheap compared to where we think the growth is going to be. You know, as Warren Buffett said, the market is a voting machine in the short term and a weighing machine and the long run. And by that he meant that, you know, in the short term, there’s a lot of sentiment. People, psychology, their views. That’s going to drive the market. But over time, ultimately, it’s going to be the importance of the math, the valuation, the gravity evaluations. And that’s where the weighing machine comment comes through. And that’s what we’re focused on. So we’re patient and we’re investing in these type of things for the long run in our portfolio.
Stuart Turley [00:25:18] I tell you wealth creation is something. But I think that I’m trying I’m searching for the words because this is not wealth creation. This is an entire way to look at some wealth preservation in in what may be a traumatic time. So you can create the wealth. But this is also wealth preservation. I think we almost need to look at this in two different ways.
Wasif Latif [00:25:44] If you’re. Yeah. And you’re you’re absolutely right in that. And that comes back to the comment that I made about, you know, Warren Buffett and voting machine and Weinstein, which is, you know, the price you buy, the price you pay for an asset is really, really important because starting points matter. And and so that helps either preserve or destroy your wealth based on what time you’re buying thing based on its value. Right. So that becomes really important. And then if you have the patience to let that growth compound and grow over time, that is really, really important as well. And then being able to think through what is happening, connecting the dots and trying to think around what, what what is going to happen around the corner and be able to, you know, adjust the portfolio accordingly. So in, let’s say, seven, ten years from now when everybody in the world has forgotten the the big mega-cap tech boom and is now focused on commodities are the place to be and the place and the best place to be looking at, we’re probably going to be looking at whatever is the next big thing and be adjusting the portfolio accordingly.
Stuart Turley [00:26:51] This is cool, and I’ll tell you as much research as I do in as many people as I talk to around the world. You’re a rockstar. I mean, this everything that you’re saying is just like, right on. And my head’s exploding with all of our next questions and things, and I’m really excited about our next one. Said, how do people find you?
Wasif Latif [00:27:09] You think the best place is our website? It’s sort my partners.com. We have some we have a section there which is our insights section. And we’ve written a few papers on this type of stuff and there’s great information there. And then I’m easily findable on LinkedIn or Twitter as well under my own name. And so those are the ways to get in touch with us.
Stuart Turley [00:27:30] But I’ll tell you what, I am so excited. We’re going to have the the slides in there that we talked about in the show notes. And I cannot wait for our next, next conversation and a deeper dive on some of these topics, because I really appreciate your insights, which are rock solid. So I do appreciate your time today. Thank you.
Wasif Latif [00:27:49] Likewise. Thank you.
Stuart Turley [00:27:50] Talk to you soon.
