Commodities: The Asset Class of 2025
In the face of shifting inflation dynamics and surging structural demand, commodities are emerging as the defining investment theme of 2025. Michael Mueller , CIO and Founder of FALGOM AG, shares his expert insights into why institutional investors cannot afford to overlook this critical opportunity. He also offers a deep dive into the firm’s innovative ARP Commodities strategy, designed to thrive in today’s complex market landscape.
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Michael, many experts are calling commodities the "asset class of 2025." What’s driving this narrative, and why should institutional investors act now?
Michael Müller: Commodities are uniquely positioned to dominate the investment landscape this year. We are witnessing a convergence of factors that make them not only relevant but essential. Inflation, while subdued in 2024, appears poised for a second wave, driven by fiscal stimulus and ongoing supply chain disruptions. Historically, commodities have a near-perfect correlation with rising inflation, acting as a natural hedge.
Beyond inflation, structural shifts such as the global energy transition and geopolitical realignments are creating unprecedented demand for critical materials like copper, lithium, and crude oil. At the same time, years of underinvestment in production capacity have constrained supply, amplifying upward price pressures. This isn’t just a cyclical play – it’s a long-term opportunity.
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Why do you believe commodities are particularly compelling now, at this stage of the inflationary cycle?
Michael Müller: The timing couldn’t be better. Historical data show that inflation cycles often feature a secondary peak within 24 months of the initial one. We’re currently in what I call the “building phase” of the next inflationary wave, making this a pivotal entry point. Commodities have always been the first to react to inflationary pressures, and our research indicates they will lead the way again.
Our ARP Commodities strategy is specifically designed to capitalize on this dynamic. With its built-in long bias, the strategy systematically captures upside potential while managing risks through advanced regime detection and active drawdown protection.
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Let’s delve deeper into ARP Commodities. What sets this strategy apart in a competitive market?
Michael Müller: ARP Commodities is the culmination of decades of market expertise combined with cutting-edge technology. At its core is a quantitative, systematic framework that dynamically adjusts exposure based on market conditions. Using proprietary algorithms enhanced by AI and machine learning, we identify three distinct market regimes – up, down, or neutral – and adapt our portfolio accordingly.
This dynamic approach ensures we’re always positioned to benefit from both cyclical inflation trends and structural demand drivers. Whether it’s energy, metals, grains, or soft commodities, ARP Commodities offers diversified exposure tailored to the unique characteristics of each asset class.
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What about volatility? Many investors associate commodities with unpredictable price swings. How does ARP Commodities address this concern?
Michael Müller: Volatility is inherent in commodities, but it also presents opportunities for disciplined investors. ARP Commodities employs multiple sub-strategies, including momentum, trend-following, and mean-reversion, to capture returns while managing risk. Our AI-driven anomaly detection system refines trading signals, ensuring we avoid unnecessary exposure to short-term noise.
Additionally, we use active drawdown protection to mitigate losses during market downturns. This balanced approach allows us to deliver strong, risk-adjusted returns while providing peace of mind to our investors.
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How do macroeconomic factors, particularly central bank policies, influence your strategy?
Michael Müller: Central banks are a major influence on commodity markets. As we approach 2025, the likelihood of monetary easing has increased, especially as global growth moderates. Lower interest rates typically weaken the US dollar, creating a tailwind for commodity prices. At the same time, fiscal policies focused on infrastructure and renewable energy are driving demand for raw materials.
Our strategy incorporates these macroeconomic indicators, dynamically adjusting positions to align with evolving conditions. This proactive approach ensures that our clients are not just prepared for change – they’re positioned to benefit from it.
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Finally, what would you say to institutional investors considering commodities in 2025?
Michael Müller: This is a once-in-a-decade opportunity. Commodities are uniquely positioned to benefit from a combination of inflationary pressures and structural growth trends. The risks of staying on the sidelines far outweigh the rewards of waiting.
Our ARP Commodities strategy provides institutional investors with a proven, forward-looking framework to navigate this complex market environment. By combining innovation, expertise, and adaptability, we’ve created a solution that’s not just about weathering the storm – it’s about thriving in it.