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Harvest festival

Barings is the latest firm to respond to growing investor interest in the agriculture sector, with a fund planned for the third quarter of this year.

The global fund will be managed by Jonathan Blake and will have a diversified portfolio of 90 to 135 holdings of equal weighting.

Blake runs the firm’s £769m Dublin-domiciled global resources fund, which currently has a 19 per cent exposure to soft commodities – an all-time high for the fund.

He says pressure on food prices is growing, with the world population growing by 80 million a year and meat consumption on the rise.

He says: “Limited resources and bottlenecks mean supply is struggling to keep pace with demand while global warming is likely to create additional pressure on supply in years to come.

“There are plenty of agricultural investment opportunities in developed Western markets but we believe many of the most attractive ideas can be found in emerging markets around the world, where they are often overlooked.

“Latin America is one of the areas where we see considerable potential to benefit from these trends. Brazil and Argentina have two of the most efficient agrarian sectors in the world, thanks to rainfall and fertile soils, and the importance of agribusiness to their economies reflects this. A significant proportion of Brazil’s exports are already agriculture-related and we expect this to grow as demand continues to push food prices higher.”

Soft commodity funds have attracted more interest recently as the likes of corn, wheat have continued to rise in value, helping these funds achieve strong returns at a time when volatility is rife.

Schroders closed its agriculture fund to new investment in February after seeing inflows of £1bn following its announcement to soft-close the fund the previous month. Since launch in November 2006, the fund has pulled in over £3bn.

Head of UK marketing James Rainbow says: “With prices rising as they have been recently, it is clear that although we are bullish on soft commodities, we are in largely uncharted territory. But demand is still rife for these commodities and many would tell you that this is likely to continue.”

However, not all is rosy in the garden. Poor performance figures for March coupled with volatile oil prices have led to questions over whether this bull run is coming to an end.

Blake believes there is still more to come. He says investors’ minds are being clouded by the fact that most commodity cycles in recent times have tended to be short but they can last for longer periods. For example, a 25-year cycle began at the end of World War II while industrialisation in the US led to a cycle of over 40 years beginning in 1825.

The Eclectica agriculture fund run by Hugh Hendry has returned 36.4 per cent since launch on June 8 last year and has grown to £240m. The group has plans to follow it up with a second launch that delves into commodity futures.

Eclectica argues that we have just seen the end of a bear market in agriculture prices and that the real high of soft commodities dates back to the early 1970s.

Head of sales James du Boulay says: “Soft commodity prices are down at 75 per cent from the real peak in 1973-74. With new money flowing in, farmers will now be able to improve the infrastructure of their farms and with the likes of fertilisers improving rapidly in the past 30 years, it makes sense that the improvement will make a much stronger bull run in the future.

“If you look at the correction in March, you will find that most of the downturn came courtesy of the large caps. No one at the big banks understood the mass of money going into the sector and, as a consequence, no analysts were put forward to focus on it. We feel that we are in a 25-year cycle that kicked off 12 to 18 months ago and will surpass all previous highs seen in the market.”

Hargreaves Lansdown investment manager Ben Yearsley says the firm is still reasonably bullish, hence the presence of the Eclectica agriculture and Sarasin Agrisar funds in its Wealth 150.

He says: “I must admit that I have taken some money off the table in the Schroder agriculture fund following a strong bull run and the masses of money that have been pumped into the fund.

“I believe that the market will have to slow as it cannot continue at the pace it has been going in recent months but all the ingredients are there for these funds to take off once again.”

Informed Choice director Martin Bamford says food and fuel prices have played a big role in inflation and the fear is that people could get carried away and a slowdown could hit funds badly.

He says: “It does represent an attractive market but the problem is that investing in an asset class that has returned 40 per cent in the past 12 months can pose a massive problem, particularly for those who see it as a short term play.

“Over the longer term, it makes a much wiser tactical play. You also cannot forget the risks of double exposure in food retailers who are also tied into the agriculture story. I would say that a long-term play of 5 per cent is as far as I would go.”

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