Cheviot Asset Management's head of alternative investments David Miller says 'rationality' is beginn...
Cheviot Asset Management's head of alternative investments David Miller says 'rationality' is beginning to re-enter the investment cycle, particularly for commodities and hedge funds.
Amid widespread economic pessimism, Miller says it is worth recalling the considerable achievements of the last 25 years, such as the reversal of the trend towards ever higher interest rates and inflation in the 1960s and 1970s.
Miller says unfortunately this solid foundation was also used as a platform for increasing risk, and as this has been a powerful long-term trend, investors are currently faced with a painful reversal.
He says although 2009 appears to be a continuation of last year, with equities down 16% and gilts and the dollar up, there are signs for optimism.
"Companies with sound balance sheets and free cash flow are outperforming those that struggled to survive a boom let alone a recession. Many hedge funds have restructured and have decoupled from equities," he says.
Meanwhile, Miller adds after last year's rollercoaster ride, commodities have split into three camps and prices are moving in an understandable way.
"Gold is perceived to be an attractive hedge against monetary instability and the return of inflation, industrial metals are sensitive to economic activity, whilst agricultural commodity prices have stabilised in anticipation of lower production levels."
