Rising food prices and the fast-growing world population have led to a surge in interest in the sector.
Funds with a focus on agriculture are among the best-performing of the last three years, according to FE Analytics. There are a number of onshore and FSA offshore recognised portfolios that have returned close to 100 per cent since February 2009, including the $2.5bn DWS Invest Global Agribusiness fund, which is up 93.1 per cent during this period.
The volatility associated with an area as specialist as agricultural has discouraged the vast majority of advisers from investing directly into the asset class; however, rising food prices and the strong performance of recently launched funds have increased its appeal.
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Source: FE Trustnet
In the latest FE Trustnet poll, agribusiness proved the most popular specialist asset class among our readers, accounting for more than 41 per cent of the vote. Structured products were second with 26 per cent, followed by ethical funds and VCTs, which garnered 15 and 18 per cent respectively.
The number of agribusiness funds with a three-year track record is also on the up, with the likes of Baring Global Agriculture, Sarasin AgriSar and Allianz RCM Global Agricultural Trends all reaching the milestone in the last 12 months. Inflows into these funds, which all have in excess of £100m under management, have been steadily increasing in recent months.
Performance of funds over 3-yrs
Source: FE Analytics
With food and oil prices expected to stay high for at least the medium-term, the popularity of this developing asset class is likely to gather momentum.
Rob Morgan, analyst at Hargreaves Lansdown, believes the theme is compelling and envisages further inflows into agriculture funds in the coming years.
“Many of these specialist themes are very difficult to play, but it’s quite straightforward to get a well-diversified portfolio of agriculture stocks,” he said.
“A lot of these funds were launched on the back of the commodities run in 2008 and 2009 and they’ve done rather well. It’s a very cyclical market with a lot of peaks and troughs, but the long-term theme is a compelling one if you’re willing to take on the risk.” Hargreaves includes the Sarasin Agrisar fund on its Wealth 150 list.
“We like it because it’s more diversified than its competitors,” Morgan continued. “We did hold CF Eclectica Agriculture, but it’s very concentrated and a little too volatile for our liking.”
While Jonathan Blake, manager of the Baring Global Agriculture fund, sees some short-term risks in the market, he is upbeat about the outlook for food and oil stocks in particular this year.
“We believe that grain and edible oil prices are likely to remain at elevated levels over 2012 as inventories remain low compared to consumption levels from an historical perspective,” he said.
“There could be some downside risk to grain prices over the year as we are expecting a large northern hemisphere harvest; however, the outlook for agricultural equities remains strong over 2012 as the sector was de-rated last year, having been perceived as being overly sensitive to economic growth.”
Renzo Casarotto, who heads up the First State Global Agribusiness fund, is of a similar opinion.
“In the short-term it is likely that we will see agricultural equities continue to be impacted by negative sentiment in the market and concerns about reduced demand,” he explained.
“In the longer-term, however, demand growth for soft commodities should be driven by developing countries such as India and China.”
“Long-term soft commodity prices should also be supported by historically low grain inventory levels. It will require several years of record grain crops to restore global inventory balances to more comfortable levels,” he added.
Investors who want to get exposure to this high growth market will, however, have to pay for the pleasure. The average agribusiness fund in the IMA unit trust and OEIC universe has a total expense ratio (TER) in excess of 2 per cent.