While the US, UK and Europe continue to loosen their dominant grip on the financial markets, economies from the East may come to prove that commodities are the way forward
While the US, UK and Europe continue to loosen their dominant grip on the financial markets, economies from the East may come to prove that commodities are the way forward.
My view remains that we are in a commodity bull market and those lacking exposure to commodities are missing out.
Agriculture in a bull market
In 2003, I held a seminar in London together with global investor Jim Rogers where I explained why I was allocating a large part of my wealth to commodities. In fact, I recently reread Rogers’s Hot Commodities where he states: ‘Warning – there will be setbacks, I cannot promise a stairway to heaven. No bull market in any asset has ever gone straight up.’
All bull markets have setbacks – the stock market did not go up in a straight line between 1982 and 2000. It had many setbacks, but it was a bull market. If we say this bull market started in 2003 and a typical bull run lasts 18 to 20 years, then we still have some way to go.
The problem with investors is that they tend to have short memories and focus on recent data. For example: shares in Monsanto (NYSE: MON), one of the world’s leading seed providers, are up over 473 per cent in the last five years. Though they’ve been down around 40 per cent over the last 12 months, the trend remains up.
Europe and US-based investors forget how small a part of the world this is, and the true growth is coming from China, India and other developing economies. It’s now time for other countries to lead.
Regardless of where you live, everyone consumes agricultural and soft commodities and will continue to do so. As the global population grows and living standards increase in developing economies, so the amount of calories consumed increases. Forget TVs and cars. I am talking about the developing economies trading up from just rice, to say, rice and pork, or rice and chicken.
My guess is that 95 per cent of readers do not own any agricultural commodities. I see thousands of financial advisers and fund managers investing clients’ money in the stock market and in property and bonds, yet when it comes to commodities, bar a few specialised funds, it’s unheard of.
I often hear commodities are ‘risky’ from the very same people content to invest in shares which are far riskier. Shares go to zero, whereas commodities do not.
Farming in growth mode
For the last 30 years or so, those leaving colleges and universities have aspired to go and work in the service or financial sector, as these areas have boomed and provided the best working conditions and salaries. Not many people have left to go into farming, but that could now change.
I see the service sector declining for the next ten to 15 years; we don’t need so many banks, insurance companies, travel companies, restaurants or retailers. These businesses, certainly in Europe and the US, will contract, while farming will expand.
The easiest way to gain exposure is still from exchange traded funds (ETFs), which you can buy via a stockbroker and place in a pension/SIPP or hold in a normal account. Owning the ETFs outright means you are not subject to margin calls or leverage.
ETFs Agriculture (LSE: AGAP) and ETFs Softs (LSE: AIGS) would give you a good exposure. Livestock over the longer term should also benefit: ETFs Livestock (LSE: AIGL).
If you’re willing to take a little more risk, then investing in agricultural-based companies is another angle.
I suggest the EFT Market Vectors Agribusiness (NYSE: MOO), which has a good range of companies involved in fertilizer, including Potash Corp, Archer Daniels Midland, Monsanto and Yara Intl. A similar ETF is now offered in the UK called the ETFS S Net ITG Global Agri Business (LSE: AGRP).
Vince Stanzione has produced a home-study course to teach private investors how to benefit from making money from financial spread betting, trading ETFs, fixed odds and financial futures. For more details, please visit www.fintrader.net