The Ups and Downs of Investing in Resources Stocks

Mining shares make up a substantial portion of the FTSE/JSE All Share Index (Alsi), and therefore have a strong influence on the performance of the index. If you are invested in a passive fund that tracks the Alsi or Top 40 Index, or if the portfolio of an active fund you have invested in has a high exposure to mining stocks, it’s useful to have an idea of how these stocks behave.

The JSE performed exceptionally well in 2025. Looking at unit trust funds that invest exclusively in shares on the local stock market, you would think that they would have performed equally well. But few of them matched or exceeded the performance of the Alsi, and the answer lies in the extent to which portfolio managers were invested in resources stocks.

To December 31, 2025, according to the Corion Report, the Alsi rose 42.2% over the 12 months. All sectors contributed to this gain, but none more so than the resources sector, which was up 144.2%. This was largely due to the dizzying rise in the gold price, which began 2025 at about US$2 700/oz and ended it at about $4 300/oz.

However, looking at fund performance, the average fund fully invested in local equities (funds in the SA General SA Equity category) delivered 35.7%.

Explaining the difference between what active and passive SA equity funds delivered in 2025, the Morningstar Active/Passive Barometer notes that the strong returns of the South African equity market were heavily concentrated. “A handful of gold and platinum miners accounted for the bulk of the calendar year’s return, and their outsized performance saw them grow to represent an increasingly larger component of local market indices. Against this backdrop of narrow market leadership, active managers struggled to keep pace with passive strategies tracking market indices,” the Morningstar report says.

Many active managers are wary of resources shares, with good reason. Although these shares may shoot the lights out at times, they can significantly underperform at other times. 

The minerals mined in South Africa form part of the global commodity basket, which has energy components (oil and gas) and agricultural components (maize, sugar, soybeans and other crops). While the supply-demand dynamics of these materials differ considerably, commodity prices are broadly cyclical in nature.

Garima Vasishtha, senior economist at the World Bank, noted in a 2022 blog, “Commodity price cycles: causes and consequences”, that commodity prices had undergone repeated cycles over the past 50 years and these cycles were highly synchronised across commodities. 

Vasishtha said global macroeconomic shocks have been the main source of commodity price volatility. “Global demand shocks have accounted for 50 percent of the variance of global commodity price growth, while global supply shocks have accounted for 20 percent of the variance. In contrast, between 1970 and 1996, supply shocks specific to particular commodity markets – such as the oil price shocks of the 1970s and 1980s – were the main source for variability in global commodity price growth.”

Despite observed correlations in commodity prices worldwide, it must be recognised that gold (which SA produces) and oil (which we don’t, in any significant quantities) are essentially outliers in the commodity basket. Gold has a unique status as a safe-haven investment asset above any economic value it may have and oil is the mineral on which the world depends more than any other, despite progress in recent years to diversify away from it. The gold price rises when investors flee the financial markets into safer assets – in other words, when demand rises. The oil price typically rises when supplies become restricted, as has occurred in recent weeks with the closure of the Strait of Hormuz.

While the oil price has behaved predictably since the start of the Iran War, gold has not. Euronews reports that gold hit an all-time high of $5 602/oz at the end of January and looked to be heading higher, but by the end of March had dropped about 20% to around $4 500. This was because the dollar had strengthened and investors were seeing better value in US bonds than in holding gold.

In a nutshell, be aware that commodities are volatile and vulnerable to geopolitical shocks while also recognising their advantages. Shaun le Roux from PSG Asset Management notes: “Resource stocks can be volatile over the shorter term, but this volatility works both ways and commodities can offer protection and upside in an environment where expensive, well-owned financial assets start to struggle.”