As markets emerge from the financial crisis, credit markets will represent a very attractive investment opportunity in the next few years, the founder of Marret Asset Management Inc. said on Monday.

Speaking at a Toronto conference on alternative investments, Barry Allan, founder and chief investment officer of Marret, said the process of widespread deleveraging in the years ahead will result in stronger performance among debt investments than equities. This is because corporations tend to deleverage by issuing equity and paying down debt, he said.

“The single best opportunity right now is in the credit markets,” he said. Credit markets always lead equity markets, Allan added.

He pointed out that credit spreads are discounting default rates as high as 30% to 35%. Allan expects the default rate — which is currently 4.5% — to reach only 12%.

“I don’t think discount rates are going to get anywhere near where the markets are discounting right now,” he said.

Investments in gold and oil are also set to perform exceptionally well in the next two to three years, according to Allan.

Every portfolio should have 5% to 10% exposure to gold, he said. He recommends exposure to the precious metal through gold mining equities.

“Buying shares in Canadian gold mining companies is probably one of the best equity plays over the next two to three years,” Allan said.

Investments in energy are likely to be lucrative going forward given the rapid rate at which the world is consuming a finite amount of oil, according to Allan. With a major stimulus package in China beginning to take effect, he expects higher demand for oil to boost the price of the commodity by the end of the year.

Infrastructure also represents an attractive investment opportunity, Allan said. It will be particularly strong as governments around the world allocate significant amounts of funding to infrastructure projects as part of economic stimulus packages.

Unlike many speculators, Allan does not expect financials to perform well in the near future. Equity offerings by many of the banks have significantly boosted the number of shares outstanding, and revenues have deteriorated, pointing to a downward trend in return on equity, he said.

Overall, Allan expects the investment cycle of the next few years to be very different from other cycles in history. He expects a recovery to take longer than anyone predicts.

“I think we’re going to be in this deflationary period longer than people think,” he said.