Advisers go global in niche product search

This is in spite of the rise in opportunities in both the US and UK in the shale oil and gas industry, which feeds into wider industries such as fertiliser production and other areas of the agriculture sector.

Agriculture funds generally sit in the IMA Specialist sector, one that the latest Celsius research, which canvasses the views of roughly 1,000 financial advisers to assess sentiment towards the range of regions, asset classes and sectors for the coming months, reveals as being ‘out of favour’ with advisers.

On a scale between -5 and 5 the category recorded an average overall rating of 0.79, with a detailed breakdown of responses revealing that larger advisers with more than £10m assets under administration were the most favourably disposed to the sector.

Similarly, commodities saw a fall in sentiment receiving an average overall adviser rating of -0.15. In this case, the adviser set most favourable towards the sector were those with assets under administration of £20m and above.

However, the advisers surveyed indicated an increased likelihood of investing in North America, a region currently benefiting substantially from shale oil and gas discoveries and production.

As a key ingredient in some fertiliser products, the resulting fall in gas prices because of shale discoveries is creating significant opportunities for investors in this field as input costs fall but demand remains steady.

With an average overall adviser rating of 1.99, according to the Celsius research, the North America region increased in its appeal to advisers, receiving a 10-point sentiment shift. This brings the region to its highest Celsius index reading of 80, with its previous high of 70 reached just last quarter.

Meanwhile interest in UK-based investments has also spiked among advisers. This region saw a 16 point sentiment shift from the second quarter of 2013 to the third quarter of 2013. The data further reveals that larger advisers with between £10m and £20m in assets under administration were the most favourably disposed to the region.

Although very much in its infancy when compared with the US, the UK’s shale oil and gas industry is experiencing significant positive developments. The British Geological Society in recent weeks announced new shale gas resource in parts of central Britain of between 822trn cubic feet (TCF) to 2281 TCF.

Eric Gordon, energy analyst at Brown Advisory comments: “In the US, fracking technology has revolutionised the energy market where it has seen a stunning surge in the volume of oil produced in the last three years to the point where it is remarkably accounting for the majority of global oil production growth. The process has caused much controversy and debate over its environmental and economic impact. However, in the US, fracking remains regulated by individual states rather than the federal government which has largely supported growing activity.

“It is likely that eventual drilling and production of shale gas will take place in the UK, assuming the government and population determine that the economic benefits outweigh any potential environmental impact. However, it will undoubtedly be a very different environment and process in the UK to that of the US.”

On a sector basis, the data placed further weight behind the adviser expectation of ‘going global’ when it comes to allocating client assets.

In the first two quarters of 2013, the advisers surveyed ranked ‘global’ as the most attractive region. For the period of July-September, the data shows a 4-point sentiment shift upwards.

The global region recorded an average overall rating of 2.05, with a more detailed analysis of the responses given showing advisers with assets under administration of between £10m and £20m as the most favourable towards the ‘global’ allocation.

There are a number of agriculture funds that operate on a global basis and, as such, have been seeing interest from advisers that are diversifying clients away from the turbulent equity and bond markets.

Funds that operate in a niche area such as agriculture, therefore, are more than likely to benefit from the influx of new client money expected by advisers in the third quarter of 2013. The Celsius data reveals that the average UK investment adviser expects to attract £1.8m in new client funds in the third quarter of 2013 – increasing by 63.6 per cent from £1.1m in the last quarter.

Of course, this remains to be seen, but as investors gain more confidence it is likely that they will increasingly move towards the more niche areas such as agriculture in order to diversify their portfolios.

Jenny Lowe is features editor at Investment Adviser