Introduction
According to a search of FE Analytics, there are seven funds offering investors the opportunity to gain exposure to the agriculture universe.
None of these funds has a 10-year track record, which suggests that this is a new area of investment for many managers.
In the five years to September 26, the Allianz Global Agricultural Trends fund run by Bryan Agbabian has generated the largest return for investors of 58.94 per cent, followed by the Pictet Agriculture fund, which achieved a 36.16 per cent return during the same period.
Mr Agbabian says the reason for launching his fund came in Autumn 2007 amid rising corn prices and fertiliser stocks that were, as he puts it, “going through the roof”. He also notes that there were few agriculture funds available to investors at the time.
Data from FE Analytics shows the MSCI AC World Agriculture and Food Chain index is lagging the MSCI World index in the 12 months to September 26 2014, having generated a return of 6.28 per cent against the MSCI World’s 10.22 per cent return.
However, the specialist index has outperformed the FTSE 100 during the same period, which delivered just 4.88 per cent to investors.
Investing in agriculture funds may not be suited to every investor and those interested in this industry should be aware agriculture and farming stocks carry their own risks. For example, weather plays a crucial role in determining crop yields.
However, for James Govan, manager of the Baring Global Agriculture fund, the outlook for this sector is positive overall.
He forecasts: “We consider the outlook to be positive for the asset class and particularly in the midstream where a number of the subsectors, such as US chicken production and ethanol, crushed margins and are now making supernormal profits in this lower-crop price environment.
“Even at these lower-crop prices, the farmer is incentivised to maximise production and as such we do not expect much change in fertiliser or seed demand.”
Mr Agbabian explains that the US grows 40 per cent of corn globally and produces 35-40 per cent of soybeans each year, making it a significant region for agricultural commodities. His attention is also on Brazil, which is becoming a bigger soybean and corn producer.
Looking ahead, Mr Agbabian notes: “We expect another year of rebuilding of inventory stocks for corn, soybeans and wheat, both in the US and globally.
“In spite of falling prices for corn, soybeans and wheat, farmers should plant as much input-intensive corn in 2015 as in 2014 based on normal rotation from soybeans to corn and farmers that planted corn-after-corn.”
He adds: “The reduction in area planted will come from Brazil’s second crop of corn due to deteriorating economics there. Upstream companies such as Monsanto for seeds and CF Industries for nitrogen fertiliser should benefit.”
THE PICKS
First State Global Agribusiness
Co-managers Renzo Casarotto and Skye Macpherson are behind this modest £26m fund that launched in May 2010. Over three years to September 26 it has delivered a 22.34 per cent return, according to FE Analytics. In the 12-month period performance suffered and the fund lost 0.06 per cent. It has since recovered though, so this could be one for investors with a long-term view. Fertilisers account for 19.5 per cent of the portfolio, while forestry comprises 15.6 per cent.
Sarasin Food and Agriculture Opportunities
Henry Boucher, who is assisted by deputy manager Ed Bailey, manages this £122.6m fund. Their objective is capital appreciation through investment in the longer-term trends within the global food and agricultural industry. The portfolio invests across the agricultural value chain ‘from field to fork’. On a geographical basis, the portfolio has 35.1 per cent allocated to Europe ex UK, with 22.5 per cent of the fund in North America. In the five years to September 26, it has delivered 29.88 per cent to investors, and over three years it has produced a solid return of 24.04 per cent.
EDITOR’S PICK
BlackRock Global Funds World Agriculture
This fund launched in February 2010 and has assets under management of $167m (£104m). Manager Desmond Cheung seeks to invest 70 per cent of its assets in the equity securities of companies engaged in areas such as agricultural chemicals, equipment, biofuels, crop sciences and forestry. Monsanto and Tyson Foods are among the top-10 holdings in the portfolio. Its three-year track record shows the fund has returned a respectable 27.27 per cent to September 26 2014. A strong performance means this could be the preferred choice for investors.
