In the next four years, the best place to invest is in the developing world, according to Alan Reid, CEO of Forward Funds.
Within emerging markets, Reid focuses on commodities to manage Forward’s $6 billion in assets under management.
“Well, think about it. Developed markets are at a 1, maybe 2 percent growth rate. Emerging markets, like China, [offer] 8 to 10 percent growth rates,” he said.
Reid’s top picks that offer this emerging market “pop” are:
BRF Brasil Foods is a food producer and distributor in Brazil.
“They are going to be drivers, because their middle class [growth] is not about Tiffanys, it’s about them actually eating food,” said Reid.
CF Industries is a U.S.-based distributor of nitrogen and phosphate fertilizer products. Reid likes this company essentially because corn crops need nitrogen.
“It’s a great story, the U.S. is a low-cost corn producer. The Chinese think they are going to take in 80 percent of corn consumption going forward,” said Reid. “That means a lot more corn, and a lot of nitrogen.”
Komatsu, an over-the-counter stock, is an industrial manufacturer based in Tokyo. Reid calls it the “Japanese version of Caterpillar.”
Simply put, “it’s fuel-efficient, and has easy delivery into China, with a better valuation than (Caterpillar),” he said.
Lastly, Soundwill Holdings, another over-the-counter stock, manages and develops real estate in Hong Kong and mainland China.
“This company is being priced at a huge discount,” Reid said. “Their [net asset value] is 40 percent of what it’s trading at.”
Soundwill’s trailing 10-month valuation is currently listed at a 9.4 multiple, meaning the stock price is only little over nine times what the stock is worth now. (Comparatively, many large-capitalizationU.S. companies trade at 20 times to 25 times multiples daily).
That said, these plays likely require a strong stomach for commodities volatility.
“Commodities are all momentum driven,” Reid said. “So whether its up or down — its big.”
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Forward Funds hold positions in each of the aforementioned stocks.