SOURCE: Financial Advantage

January 04, 2011 14:01 ET

Play Emerging Nations' Boom With First World Mining and Energy Stocks, Financial Advantage's Martin Says

COLUMBIA, MD--(Marketwire - January 4, 2011) - Profit from emerging nations' skyrocketing demand for energy and metals by investing in North American and European mining and energy companies, says J. Michael Martin, chief investment officer of Financial Advantage, Inc., an investment advisor near Baltimore. 

"Because of the exploding requirements of developing countries, worldwide demand for hydrocarbons and metals will keep rising faster than supply," Martin says. "Their consumption of raw materials is growing even faster than their GDPs."

Investing in hard-asset companies lets investors harness the dynamism of emerging markets without getting exposed to their political and currency risks, he says.

Expanding output at existing mines is costly because remaining deposits are of lower quality. Exploring for new resources and opening up new mines and wells is a slow, investment-intensive process. All that points toward higher commodity prices.

Martin also believes "quantitative easing" in the US and the eurozone will drive prices higher.

"There's no political will to cut spending or raise taxes. On both sides of the pond the only practical compromise seems to be to print money -- and the extractive industries are in the best position to protect their real returns with price increases," Martin says.

Martin takes a four-pronged approach to investing in natural resources:

Oil, gas and coal. He favors companies that own energy reserves in politically stable countries. They include large US multinationals as was as well niche players like Canadian oil companies.

Copper and iron. Martin's metals stocks are international mining operations based in Canada and Europe, and one Brazilian company, his only direct investment in an emerging market.

Timber. The firm's portfolio includes the largest owner of US timberland. 

Gold bullion. Martin trimmed gold back a bit in 2010, to 7 percent of his firm's core portfolio, but believes it should still be in everyone's portfolio. "Gold is a currency that can't be printed, and is accepted all over the world as a store of value and medium of exchange. As national debts pile up and confidence in paper money declines, gold goes up," he says. "It's a long-term play, not a trade."

Martin's firm currently has about 12 percent in energy, mining and gold bullion. He anticipates almost doubling the firm's allocation to "hard assets" in 2011.

Despite his bullishness on the sector, he cautions investors not to overdo it.

"Money managers can scarcely resist the opportunity to play the seer, but mortals can't know the future. The first rule of prudent investing always is: diversify," says Martin, who's also president of the firm.

Financial Advantage (www.investfai.com), in Columbia, Md., provides personal financial planning and investment-management services to retirees and aspiring retirees on a fee-only basis, and provides portfolio management for other financial advisors. "Wealth Manager" magazine and "Financial Advisor" magazine have named Financial Advantage, with about $258 million under management, one of the top independent financial advisory firms in the country.

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