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Fund Review: Agriculture

Introduction

The latest Agricultural Outlook 2015-2024 report from the Organisation for Economic Co-operation and Development and the Food and Agriculture Organisation of the United Nations notes that prices for both crops and livestock “showed diverse trends in 2014”.

Two years of strong harvests has put pressure on the prices of cereals and oilseeds, states the report, while tighter supplies of livestock following issues such as disease outbreaks support higher meat prices.

But it adds that “in real terms, prices for all agricultural products are expected to decrease over the next 10 years, as production growth… outpaces slowing demand increases.

“While this is consistent with the tendency for long-term secular decline, prices are projected to remain at a higher level than in the years preceding the 2007-08 price spike. Demand will be subdued by per-capita consumption of staple commodities approaching saturation in many emerging economies and by a generally sluggish recovery of the global economy.”

These issues could explain why the MSCI ACWI Agriculture & Food Chain index has lagged the wider MSCI World index across one, three and five years. Although for the year to date to July 13 it has edged ahead with a gain of 5.24 per cent against a 4.46 per cent rise in the MSCI World index and the Bloomberg Agriculture Subindex fall of 1.34 per cent, according to data from FE Analytics.

But will this continue for the rest of the year?

Fabien Weber, commodity expert at GAM, says: “In grains, the beginning of the growing season in the northern hemisphere is subject to considerable uncertainty this year, not only due to the usual weather-related issues, but also a question over the wheat harvest in the Black Sea region.”

Barings, meanwhile, acknowledges the impact grain prices have had on the sector in recent years, but suggests that 2015 will mark “a cyclical price bottom for grains” in the coming months.

James Govan, investment manager, Baring Global Agriculture fund, says: “Abundant grain supplies have weighed on prices, pressuring farmers’ profitability. While it seems that farmers in the US have only trimmed back slightly on fertiliser, seeds and crop chemicals, our research indicates that farmers are becoming more cost conscious, particularly in purchases of big-ticket items like high horsepower tractors and combine harvesters.”

That said, Mr Govan adds that “US Department of Agriculture reports have been positive for grains and edible oil prices, with US corn and soybean inventories and planted corn acres lower than market expectations”.

“If the recent rally in grains and edible oil prices is sustained, this should boost farmer sentiment and their ability to spend on inputs such as fertiliser, crop protection and seeds,” he says.

THE PICKS

Pictet Agriculture

This £216m Luxembourg-domiciled fund was launched in May 2009 and is managed by Gerardus Van Der Geer and Cédric Lecamp. It aims to deliver capital growth by targeting manufacturers of agricultural equipment, alongside companies operating in the production, packing and supply sectors. The fund has delivered a steady 32.93 per cent for the five years to July 15, while its three-year return is 24.66 per cent. The fund’s largest sector weighting is to materials at 39 per cent of the portfolio, while its largest geographical weighting is to the US at 52 per cent.

CF Eclectica Agriculture

One of the smaller offerings in the agriculture space, this £37.1m fund has been managed by George Lee since its inception in 2007. Its aim, according to its annual report, is to achieve long-term growth through investing in global equities involved in agriculture- and farming-related issues. For the five years to July 15 it has delivered a return of 29.03 per cent, while its three-year return is a little lower at 14.46 per cent. Its highest sector allocation is to protein businesses at 27 per cent, while agribusiness accounts for 22.5 per cent.

EDITOR’S PICK

Allianz Global Agricultural Trends

This €221m (£154.3m) fund, which was launched in 2008, is managed by Bryan Agbabian and aims to deliver long-term capital growth with a focus on global equities. In particular, the fund invests in companies operating in areas such as the production, storage and transport of agricultural commodities, and the processing and sale of foodstuffs and beverages. Therefore the fund’s largest sector weighting is to consumer staples at 71 per cent of the portfolio. The strategy appears to have paid off with a five-year return of 56.05 per cent, while its three-year return is steady at 19.6 per cent.

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