Markets

This Fund Is Up 50%, But Could Rally For Years to Come

You've no doubt heard plenty as to why commodities are going through the roof. Yes, turmoil in the Middle East plays a part. As does a weakening U.S. dollar.

But perhaps the underlying catalyst in the commodities pits is China. The nation's $5 trillioneconomy is 90 times bigger than it was when economic reforms took place in 1978.

Major industrial hubs like Shenzhen (which has 25,000 manufacturing facilities) deserve much of the credit. China is the world's largest exporter, shipping out huge quantities of toys, electronics, apparel, automobiles and other products. The country accounts for nearly one-fifth of the world's manufacturing activity.

But before you can make a finished good, you have to start with raw materials. You can't assemble cars without steel -- and you can't make steel without coal or iron ore. But these basic building blocks are in relatively short supply.

China devours more than half of the world's iron ore supply each year and two-thirds of its metallurgical coal. But the list certainly doesn't end there.

Production of copper, for example, can't be turned on and off like tap water. There just aren't many new projects that can be brought online quickly, and existing mines often run at 100% capacity.

China also consumes more than one-third of global copper supplies and nearly 40% of the world's aluminum. And it has an appetite for oil -- about 9.4 million barrels a day and rising.

Efforts to clamp down oninflation may temper demand, but the impact will be short-lived. There is little that can halt China's inevitable rise. By some estimates, construction activity in Beijing alone is greater than that in all of Europe.

The country can't support its own weight, so it's meeting thedeficit by importing iron ore from Brazil, coal from Australia, nickel from the Philippines, and bauxite (for aluminum) from Indonesia.

And let's not forget that China isn't the only country fighting for a limited supply of these backbone raw materials -- India is another hungry consumer. The massive infrastructure boom taking place there will require huge amounts of steel and other building blocks.

There will be ebbs and flows in demand. And China won't always grow at double-digit rates. But the global economy simply can't function without the basic materials and hard assets being consumed at a ever-greater pace.

I found the easiest way for individual investors toprofit is with a fund. The world's supplies of most real assets are controlled by a surprisingly small group of companies. One fund can let you basically buy them all.

For example, BlackRock Real Asset Equity Trust's ( BCF ) $770 million portfolio is geared primarily to the metals and mining sector. You won't find any second-rate companies watering down results. The fund targets major players such as Brazil's Vale ( VALE ) , South Africa's Impala Platinum (OTC: IMPUY.PK) , and Russian conglomerate MMC Norilsk.

Metal/mining heavyweights soak up about 45% of the fund's assets. Another 30% of the portfolio is devoted to energy producers like Arch Coal ( ACI ) and PetroChina ( PTR ) , as well as the supporting cast of equipment service providers. The remainder is split between chemicals and forestry products.

Action to Take --> That's led to some rich gains. The fund has been up 50% since July. But given the bullish supply/demand pattern for limited resources, I think the rise could continue for years.

And not only does that sort of portfolio give instant access to some of the globe's most dominant "realasset " producers, but investors also receive a rich 7% dividend yield .

-- Nathan Slaughter

P.S. -- If you haven't already done so, I urge you to watch my free webcast. It outlines a few of the greatest opportunities in the real asset arena thanks to massive supply/demand imbalances I've found. (Be sure to watch especially for the details on the little-known Russian/American nuclear agreement that's expiring... click here.)

Disclosure: Neither Nathan Slaughter nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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