The $297.91m (£185.6m) Allianz Global Agricultural Trends fund was unveiled in April 2008 in response to what manager Bryan Agbabian says was a “big interest in agriculture at the time”.
Back then, rising corn prices and fertiliser stocks “going through the roof” were just the impetus Allianz required to launch the fund.
Turning to its aim, he elaborates: “Our aim is really to invest across the agricultural value chain and to look for opportunities in companies that either promote greater productivity for the production of agricultural commodities, or for companies that benefit from processing greater volumes of crops. We term this as upstream and downstream, where upstream is the production of agriculture, while downstream is processing and distribution.”
He explains that the process involves taking a top-down view, which means making an assessment of the type of environment they are currently in. “We do a lot of bottom-up work on stocks to know which stocks are the right ones to put into the portfolio depending on the type of environment we are in,” he says.
He maintains that defining the agricultural investment universe as upstream and downstream has given the portfolio the flexibility to outperform in both types of markets. “Since the launch of the fund, we’ve had periods where we’ve been in a rising commodity environment because of a shortage of crops and we needed to invest more in fertiliser companies and farm equipment companies, to years like this year where we are in a crop-recovery year,” he notes. “With a crop recovery, you would think that corn prices are going down; don’t invest in agriculture stocks. But how we define it is, there are parts of agriculture that are benefiting significantly and that’s more on the downstream side, such as ethanol, which uses corn as a feedstock for making fuel.”
Every year, Mr Agbabian looks closely at the North American crop cycle as the US is a significant producer of agricultural commodities, which also explains the portfolio’s bias to US equities. The fund is currently 73.8 per cent exposed to this region. He says: “The US produces 40 per cent of corn globally and we’re a big exporter. We also produce 35-40 per cent of soya beans and every year we plant corn in April/May and we harvest in September/October.
“Each year, depending on how well the crop is going to do [and] how much is planted, it has an impact on the market environment. We monitor that planting and growing process during the year, which helps us to confirm our positioning – what we own and why we own them – and then we start looking forward to the next year.”
On a risk-reward indicator, where the scale goes up to seven, this fund is at level six and has ongoing charges of 2.1 per cent, according to its key investor information document.
The fund has lagged the MSCI ACWI Food, Beverages, Tobacco and Water Utilities index (used for comparison purposes), over three and five years to September 25, data from FE Analytics shows.
