As stock markets continued to be volatile and bears abounded, Jim Rogers, the co-founder with George Soros of the Quantum hedge fund, was one of few bullish voices. Rogers said that commodities will defy a stuttering world economy and depressed financial markets to enjoy a 20-year bull run.
Rogers, who launched the Quantum fund with Soros in 1973, said the tumultuous market conditions of recent days reminded him of the investment environment of the 1970s.
One of the world’s most famous hedge funds, Quantum is credited with making its private investors about 20 per cent every year since its inception.
“I am long on commodities, I remember in the 1970s when economies around the world were in trouble, commodities had one of the great bull runs in history,” Rogers said.
“I am long commodities, many are far depressed from their all-time historical highs, so I would prefer to be long commodities, as in the 1970s, and short stocks.”
With the exception of the safe haven of gold, commodity prices in recent days have broadly fallen on the back of pessimistic outlooks for global economic growth.
In July the world’s biggest commodities trader, Glencore, also reported a pullback demand from China as the government attempted to slow the economy and domestic commodity buyers ran down inventories.
Rogers says he is not worried by short-term uncertainties, and said he sees long-term shortages in commodities combined with higher inflation as making for attractive opportunities.
“In the 1970s we had serious shortages and we had money printing, and a huge bull market in commodities with bad economies,” Rogers said.
“In the ’70s, stocks did nothing but commodities went through the roof. That was my investment then and I have invested the same way again.”
Declining financial markets would also exacerbate shortages in commodities, with less productive capacity being added in the coming years, Rogers said.
Rogers quit Quantum to “retire” in the 1980s and rode a motorbike across China. He later sold his New York property and relocated his family to Singapore.
In the late 1990s, Rogers launched his own commodities index products.
His Rogers International Commodities Index (RICI) claims it has made 303.31 per cent since launching in the late 1990s but has lost more than 5 per cent in the year to date.
In the total index, the biggest holdings are crude oil (21 per cent), brent oil (14 per cent), wheat (4.75 per cent), corn (4.75 per cent), and cotton (4.20 per cent).
The index is comprised of 38 different commodities and Rogers said he invests his own money into the indexes.
In its investment information, the RICI claims it decides on what commodities to include in the index by examining a commodity’s overall liquidity and world consumption patterns.
It sets its basket of commodities annually through a management committee that includes representatives from UBS, Merrill Lynch and The Royal Bank of Scotland.
Rogers was in Australia recently to promote his indexes to retail investors through the Royal Bank of Scotland.
Investors gain access to the index through Exchange Traded Certificates that are listed securities on the Australian Securities Commission.
Rogers is particularly bullish about agriculture saying that shortages in a range of agricultural products will produce strong prices not only in those commodities but also in farm land.
“Farmland is going to be one of the great investments of the next 10 to 20 years. First of all, agriculture is going to be one of the most exciting investment markets because agriculture prices are down, inventories are down to historic lows and we have a shortage of farmers.”
“The average age of farmers in the US and in Australia is 58, in Japan it is 66, we have serious shortages facing us in the world and prices have to go much higher for agricultural products and, therefore, agricultural land.”
Rogers was also scathing in his analysis of hedge fund of funds, saying he didn’t believe the business model made for a good investment.
“I can see no reason why hedge fund of funds exist, it is just an extra layer of leverage, an extra layer of fees and an extra layer of expense, I can see no justification at all,” he said.
While unprepared to comment on the recent news that George Soros was closing his Quantum Fund to outside investors and returning all external money, Rogers said increased regulatory requirements would make it hard for hedge funds to enjoy the same success.
“It is going to be more difficult in finance in the next few years than it was in the past, finance is not a popular area anymore,” he said.
“You should become a farmer instead of a hedge fund manager if you want to get rich. Farming is going to be one of the great businesses of our time. Learn how to drive a tractor or you could be driving a taxi.”
