Agriculture has moved from a niche investment play into the mainstream over the past year. Investors looking for alternative asset classes have been quick to buy into the agriculture story, attracted by long-term themes of rising meat and dairy consumption in the developing markets and demand for biofuels.
Appetite for the sector has been so strong that Schroders was forced to hard-close its alternative solutions agriculture portfolio in February after soft-closing it in January.
Other firms are set to capitalise on demand. Allianz Global Investors and Sarasin both unveiled open-ended agriculture funds this week. Allianz RCM global agricultural trends, run by Bryan Agbabian, invests in 30 to 80 companies involved directly in agriculture or related areas. The Sarasin fund uses the firm’s experience in running £150m in agricultural stocks for its main thematic portfolios.
Tim Cockerill, head of research at Rowan & Co and an Adviser Fund Index panellist, is watching the sector very closely and has been running a trial alternative assets portfolio for 12 months. However, he is using a passively run exchange traded fund for the portfolio’s 10 per cent agriculture allocation. The ETF Securities agriculture fund is designed to track the DJ-AIG Agriculture sub-index through exposure to soybeans, corn, wheat, cotton, sugar, coffee and soybean oil.
Cockerill says: “Using a basket of commodities captures the general upward movement of agricultural prices. It is a simple way in.”
The fund, which was launched in 2006, has grown rapidly since the start of 2008. According to ETFS, assets rose from £374m on December 31, 2007 to £614m by the end of January. The fund briefly broke through the £1bn mark on March 5 before falling back to about £900m.
But Henry Boucher, lead manager on the Sarasin AgriSar fund, says investing directly in soft commodities is “a mug’s game”.
He suggests a broader approach to profiting from agriculture centred on four “underlying certainties”. These are that the agricultural economy must grow wealthier, technology is part of the solution, strategic necessities, including water, fertiliser and potash, must be secured and commodity prices will remain volatile.
Technology plays in the AgriSar fund are likely to include suppliers of micro irrigation systems, which seek to minimise water wastage. Boucher says the fund will also look at the impact of changing diets in the emerging markets, including the growing transportation of fruit and vegetables in India and rising levels of obesity and diabetes in Mexico.
He says: “There are so many different opportunity sets. We want to look at all the implications of this change.”
The AFI does not contain any specialist agriculture funds but panellists will have the option of selecting them at the next rebalancing point in May.