The bull run in commodities is set to continue for at least another five years, offering long-only investors better growth potential than any other asset class, according to managed futures fund manager, Dighton Capital Management.
Bonds and property are all hitting headwinds while Dighton believes equities are set for a major correction toward the end of 2011 or early 2012 led by the developed markets.
“Long-only investors should just own commodities across the board," says Alex Moiseev," Principal and Chief Investment Officer, Dighton Capital Management, "There is nothing else that is worthwhile out there. Equities in some emerging markets do offer potential but they represent unknown territory because of the political factors.”
Dighton believes that fears over the real value of money resulting from excessive quantitative easing and consistent devaluing of currencies by many countries will drive up prices of precious metals while growing demand from emerging market economies will raise prices of base metals, soft commodities and oil.
“There are major lifestyle changes in emerging markets that are putting massive upside pressure on commodities, even compared with just a few years ago, but we are not seeing much increase in production," says Moiseev. "This is particularly true of oil, which I expect will go to $200 a barrel or more in the next two or three years. The ongoing devaluation of the dollar will only support nominal prices of oil and other commodities.
“In such an environment, investors should be looking to asset managers who can trade long and short across all the asset classes, and especially those who can effectively exploit the bull run in commodities.”
While US equities enjoyed a rally last year that will likely continue in 2011, Dighton believes much of the earnings uplifts have been driven by inflationary pressures rather than real economic growth and that quantitative easing is merely postponing the emergence of real structural economic problems. The failure of the S&P 500 to consistently breach the 1500 barrier will then lead to an eventual sell-off in US equities in the medium term that will hit stock markets around the world. Emerging markets will be quicker to recover than their developed counterparts.