Pictet’s agriculture fund, which will be launched on May 29, will be the latest addition to a range of thematic products. The PF (Lux)-Agriculture fund will be managed by Gertjan van der Geer, a senior investment manager at Pictet.
The fund excludes investments in soft commodities, instead focusing on equity investments in the agriculture value chain.
“We want to solve a problem and not profit from world hunger,” van der Geer says. However, he says the fund will, to some extent, benefit from higher food prices.
The manager invests in companies that are “expected to play a vital role in helping to supply food for a rapidly growing world population”.
Low valuations, lower leverage and higher growth form an attractive risk-return profile, he says. The fund will, however, avoid sensitive ecosystems, and have an explicit cap of 10% of investments in genetically-modified food and crops.
Van der Geer has identified population growth, dietary pattern change and biofuels as the long-term drivers for the fund. With farmland becoming increasingly scarce, high consolidation potential across the value chain and a need for capital investments are expected to be major catalysts.
As income is rising, protein and vegetable oil consumption is growing steadily. Van der Geer expects a shift in demand within agriculture from humans consuming agricultural produce to animals.
“The most important changes are happening in Asia because of growing income levels. China, for example, has doubled meat consumption within a few decades,” van der Geer says.
Demand for biofuels is also predicted to rise. “The aim is to increase yield because we cannot increase farmland. It is decreasing.”
He says waste must be reduced to accommodate demand growth, and more investments in that sector are needed, as demand for agricultural products is expected to double in the next four decades.
He says food security will remain a top priority of governments worldwide.
Van der Geer points to countries like China, Saudi Arabia, South Korea and Taiwan, which are buying farmland to ensure they can feed their population. Closer to home, he recalls how soaring food prices caused alarm last year. “We have even seen riots in Italy because of high pasta prices. And Italy is a relatively rich country.”
Some of his investment opportunities lie in improvement of farm inputs: farm machinery, better seeds, crop protection and fertilisers. But he also finds opportunities in the farm professionalisation sector, such as management, best farming techniques and better access to capital.
Supply chain services are another sector of interest. “There is an increased mismatch between the place of production and demand,” he says. Origination and storage, transport and trade, processing, and related services are some of the areas where he expects to find investment opportunities.
The fund, which will have 45-75 holdings, will be heavily exposed to small and mid-caps. Van der Geer aims to construct a portfolio comprised of 44% mid-and small caps and 53% large caps. As for geographic allocation, 39% will be invested in North America, 27% in Europe, the Middle East and Africa, and 28% in Australasia.
Other thematic products within Pictet’s range include water, timber, clean energy, security, biotech, digital communication, generics, premium brands and global megatrends.
Pictet launches “Megatrends” fund