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.
Over five years, the fund returned 62.22 per cent to investors, against the index’s 93.23 per cent return. Performance has picked up in the past year, though, with the fund returning 13.35 per cent, compared with a 7.81 per cent return by the index.
The fund actually uses a combination benchmark of 67 per cent in the DAX Global Agribusiness index and 33 per cent to the MSCI ACWI Food & Staples Retailing, Beverages, Food Products, Tobacco, and Water Utilities index.
Mr Agbabian puts this down to a change he made to the portfolio in the middle of 2013. “In the second quarter of 2013, we were coming to the realisation that we were going to have a crop-recovery year, so we started to shift our portfolio from a more upstream bias to a more downstream bias in the fund,” he says. “We reduced our fertiliser holdings, we bought more protein companies and we bought more ethanol companies. The change has really benefited the fund’s performance because in the first half of last year we were underperforming our benchmark.”
He has kept that downstream bias in the portfolio into 2014 as he points out that the companies the fund owns continue to benefit from greater crop volumes and lower animal feeding costs.
Turning his attention to next year, Mr Agbabian believes it is likely to be another crop-recovery year, which would favour his current positioning.
EXPERT VIEW
Ben Willis, head of research, Whitechurch Securities
Agriculture investing covers such a broad field that it is difficult to compare relative performance. Bryan Agbabian has certainly produced the goods in 2014, outperforming global equities, with a portfolio that invests in agricultural machinery, chemical fertilisers and food farmers. This is not a fund for all seasons, mind, and must be considered a long-term hold for those interested in investing in this area.
