Investors should turn to commodities underpinned by the emerging economies to shelter from an inflation storm set to hit the UK, says the manager of the Fidelity Global Real Assets fund.
Amit Lodha says prices are likely to surge over the next three to five years as Western Governments turn to inflation to tackle high debt burdens and economies are flushed with money from fiscal stimulus programmes.
"I do not have a strong view on whether we will see inflation this year or next year, but on a three to five year view I believe we will have an inflation problem," he says.
Lodha's research - based on the returns of different pan-European sectors during inflationary periods since the 1970s - suggests basic resources and oil & gas perform well in a high-inflation environment.
Basic resources beat the market 100% of the time during these periods and oil & gas also performed well, out-performing the market 80% of the time.
These sectors are also underpinned by the long-term growth potential of the emerging economies. Lodha points to the Chinese car market to illustrate the point as while the country might be one of the smallest markets in the world it is buying more cars than the US, the world's largest market.
"What I do in my fund is play the pricing power across the value chain," he says. "I am playing the long-term theme of increased car penetration by thinking about what goes into making cars, such as copper, aluminium and steel. So I buy copper related equities if I think copper is in short supply. Or I buy aluminium related equities I think aluminium is in short supply."
"Growth, development and the increase in both infrastructure and consumption spends in emerging markets is an investment theme that will stay with us for the next 20 to 30 years," adds Lodha.
Fidelity's positive outlook for emerging markets is echoed by Neptune, whose research indicates over the next five years emerging markets will provide no less than two-thirds of incremental growth in global GDP.
Fidelity Global Real Assets fund aims to achieve long-term capital growth from a portfolio primarily invested in equity securities of companies across the world with exposure to commodities, property, industrials, utilities, energy, materials and infrastructure.
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