This £108.1m fund is managed by Henry Boucher and it seeks to achieve long-term capital appreciation through investment in the secular and cyclical opportunities arising across the global food and agricultural sector.
Mr Boucher points out that diet changes are driving significant growth in the value of the food economy, as a rapidly growing number of middle-class consumers are demanding a richer and more varied diet. This must be met through increasing the efficiency of agricultural production, reducing waste and improving access to food.
The manager explains the team at Sarasin follows a high-conviction thematic process that seeks to identify long-term trends to generate revenue growth. “As the food economy expands, significant opportunities arise from the increased value in food processing and service,” he says.
“We see investment prospects across the global food and agricultural value chain, from improving the productivity of emerging market farmland, through food storage, infrastructure and technology, to the processing, branding and retailing of food. We are diversifying the fund along the whole food chain, from field to fork. We have high-conviction in this opportunity, expecting this trend to be sustained across a 20-year-plus period.”
Mr Boucher notes the investment process generates a portfolio of stocks that have been selected “entirely on their merits”, and have drivers that are typically robust under multiple scenarios and are underpinned by resilient, long-term trends.
The manager notes the emphasis of the fund has evolved over time as a result of its broad remit. For example, when crop prices are strong and farmers’ incomes are rising, there tends to be more opportunities at the food production end of the chain. But when food prices are static or falling then food processors and consumers benefit. “The overall process we apply has not changed – we stick with our disciplined thematic approach,” he says.
The fund sits at level five out of seven on the risk-reward spectrum, the key investor information document shows, while the ongoing charge for the A-accumulation share class is 1.74 per cent.
Although the fund has no specific benchmark, it has returned 27.86 per cent in the five years to July 13 2015 compared with the IA Specialist sector average of 11.19 per cent, data from FE Analytics shows. This lags the MSCI ACWI Agriculture and Food Chain index’s rise of 65.32 per cent, but is substantially higher than the Bloomberg Agriculture Subindex’s 1.43 per cent gain.
In terms of performance detractors, Mr Boucher notes some positions in farming companies in eastern Europe and Brazil have a lot of unrealised value in their shares, but the stocks have been suppressed by political governance worries and by weaker soft commodity prices. “The falls in grain prices have also weighed on the wider farming sector, with fertiliser producers such as Potash Corporation and Mosaic losing ground in the past two years,” he says.
However, he explains that some strong performers for the vehicle have been stocks that are “pure reflections of some of the longer-term trends”, such as Turkish tomato processor Tat Gida and Philippine snack food producer Universal Robina, which are both exposed to the growing value of emerging market diets. “Similarly, the growth in demand for gourmet sausages and restaurant meals in developed markets has buoyed [UK food producer] Cranswick’s shares, while the increasing demand for healthy protein has driven sales and profits growth for salmon producers, such as Norwegian company Marine Harvest,” the manager adds.
Recent changes to the portfolio include reducing exposure to the consumer end of the food and agricultural value chain by cutting positions exposed to emerging market consumers. “We have been adding exposure to the growth in ‘food away from home’ consumption in developed markets, where we see attractive growth opportunities,” he says.
“We have also been increasing exposure to the farm end of the value chain – crop prices have fallen in the past two years and investor interest in the space has been subdued. With grain prices likely near a trough and an emerging El Niño likely to increase weather volatility, there is likely to be some value appearing in farming-exposed stocks.”
EXPERT VIEW
Ben Willis, head of research and investment manager, Whitechurch Securities
This vehicle used to be called the AgriSar fund and the name change reflects an even wider approach to investing in agriculture. The agriculture theme is loose enough as it is, throw in food – which can include fish farms, product packaging and so on – and the thematic nature of this fund becomes far too broad. You have to ask yourself where it stops from becoming a global equity proxy. Therein lies the problem, as the fund’s performance versus the MSCI World index has been very poor.
