Tag Archives: agriculture
Active vs Passive: The Pros And Cons
When it comes to exposure to the agriculture sector, could exchange traded products be the better choice? By Laura Mossman | Published Jul 01, 2013 The appeal of the agriculture sector for investors is easy to understand – long-term drivers of growth and short-term opportunities make it a compelling option. Indeed, with the United Nations anticipating the global population could reach 10bn by 2100, the demand for food coupled with pressure on the amount of farmland look set to drive up the price of agricultural commodities and necessitate more investment in technology to improve efficiency. While the fundamentals are convincing, the best way for an investor to access agriculture is not as clear-cut. From opting to take a direct bet on an individual stock through to investing in a passive or active fund, the choice can be bewildering. Neil Jamieson, head of UK sales at ETF Securities, says the best way to navigate the options is to examine the motivation for the investment. “Investors need to consider whether they are investing for diversification and optimisation of returns in their broader portfolio or… to tilt their equity exposure towards a particular theme,” he says. “While equities are geared to the business cycle and driven up and down by underlying sentiment, agricultural commodities do not, on the whole, behave like that.” The key benefits of going for an exchange traded product are fundamentally the same as those that underpin passive investments in general: they are available at a much lower cost, they tend to perform in line with the average actively managed fund over the longer term and there is a wide choice. “For broad exposure, a basket of, say, 30 commodities will generally rise a little faster than the MSCI World index, but also fall a little faster, too,” Mr Jamieson adds. “Equally, agricultural commodities also afford some tactical options.” In the actively managed fund space, there are a number of options for investors who are willing to take on the risk and reward associated with the equity market. “Within [equities], agriculture looks attractive,” says Mike Horseman, managing director at investment specialist Cockburn Lucas. “We tend to use active managers, utilising the good managers there are in that space, then perhaps blending in some passive building blocks.” Mr Horseman cites the Sarasin AgriSar and Baring Global Agriculture funds as the leaders in the sector, offering good performance and diversification. The former has secured an annualised return of 5.1 per cent since it launched in 2008, while the latter has returned 7.8 per cent on an annualised basis in the past three years. Other strong offerings include the Allianz RCM Global Agriculture Trends, First State Global Agribusiness, Eclectica Agriculture and JPMorgan Natural Resources funds. Henry Boucher, manager of the Sarasin AgriSar fund, suggests seeking to understand the definition of agriculture each manager is working to. “For a lot of funds, the focus is large-cap North American agriculture stocks,” he says. “Instead, we look not only at the production of food in the developed world, but also the consumption of food in the emerging markets. It provides a wider spectrum of choice, and goes further than simply looking at how different stocks are going to perform in line with different commodity prices.” Overall, much of the choice boils down to each investor’s views on active versus passive funds, plus their desire to gain exposure directly to commodities or via a broader equity portfolio. The passive options stand up well, but a number of outstanding active managers in the space have proved their ability to add alpha over the long term. Laura Mossman is a freelance journalist Continue reading
Investing In Agriculture – July 2013
Published by Investment Adviser | Jul 01, 2013 The term agriculture usually brings to mind crop prices and the effects of drought or flooding on harvests, but the sector is more diverse than many realise, and weather is not the main driver of investment trends. Instead, the biggest effect on agriculture investing is the improving living standards and changing food habits of the populations of emerging and developing countries. Jake Robbins, manager of the Premier Global Alpha Growth fund, says: “As people become wealthier they are shifting their diet from basic crops, such as rice and potatoes, and eating a lot of meat. So as the demand for meat rises the demand for crops rises almost exponentially. “That is the biggest driver. We saw in 2007-08 that when supply cannot meet demand, you get huge spikes in the price of crops and meat.” Skye Macpherson, portfolio manager, global resources at First State Investments, agrees that this trend is leading to increased demand for many agricultural commodities such as dairy, sugar and meat. She adds: “Interestingly, higher meat consumption is having a multiplier impact on grain demand as animals are quite inefficient converters of grain. Impacting the listed agricultural equities is ongoing M&A in the sector, as unique and high-quality assets are being consolidated. “Most recently we saw activity in the Australian grain-handling industry with ADM bidding for GrainCorp, and in the US pork production sector, Shuanghui International bidding for Smithfield Foods. The sector is also growing, with numerous IPOs and capital raisings taking place in the past 12 months.” Mr Robbins adds that M&A activity has also been seen in Brazil and Norway, highlighting the fact that industry players value these businesses higher than the market does. This is because both the input cost for the grain to feed the chickens and the price you sell the end product for can fluctuate widely. “So it is difficult to predict what earnings will be in a quarter or any given year, so while the long-term trends are very positive because the short-term earnings are very unpredictable, the stockmarket doesn’t like that and so tends to value them quite lowly.” But while changing food habits is one trend, food supply in general and the effect of freak weather remains a factor in the sector, with crops one of the most popular investments. Mr Robbins notes the ‘blue-chip’ option in this area is Monsanto, which develops genetically modified seeds to increase crop yield. “The only problem is we look at stocks for growth, quality and value, and it has got loads of growth and quality but it always looks very expensive, so we haven’t managed to buy that yet.” Instead, as a cheaper way to get exposure he highlights Bayer, a German pharmaceutical company with a division focused on crop sciences that has been growing very quickly. Mr Robbins adds: “Last year was very poor in terms of the harvest, particularly in America as they had a huge drought and a lot of corn was ruined. So currently corn inventories globally are very low. It will take several years of good harvests to rebuild those inventory levels… so we do like corn and any exposure is positive.” Ms Macpherson adds that from a valuation perspective, it has been a volatile 12 months for the sector, but one that has created opportunities. “A significant drought in the US saw soft commodity prices like corn, wheat and soy skyrocketing in the middle of 2012, only to sell off towards the end of the year and into 2013 on expectations that both South America and the US would harvest large crops.” However, Desmond Cheung, co-manager of the BGF World Agriculture fund, warns that investors can get very fixated on crop price developments when a lot of sentiment is already factored in improved supply and lower prices. “Investors should not really be taking the view that the market does not understand the supply improvement. In the past two to three years we feel people look at crop prices as a gauge on whether or not this sector is attractive, but it actually misses out a big part of the investment universe. “We think there is a lot of exciting medium-term development, especially in downstream and midstream firms that would offset some of those firms investors would have in the upstream sectors.” When looking at agriculture, it’s clear there are opportunities globally and with increased M&A action, investors need to take a look at the wider picture instead of only focusing on crop prices. Nyree Stewart is deputy features editor at Investment Adviser Continue reading
OECD Sees West Africa Agriculture Investment Boost on Population
By Isis Almeida – Jun 27, 2013 Agricultural investment in West Africa , the world’s largest cocoa-producing region, will grow “very significantly” by 2050 as the population expands and people move from rural areas to cities, according to the Organization for Economic Cooperation and Development. West African urbanization is increasing at the fastest rate in the world, Karim Dahou, an executive manager at the OECD’s directorate for financial and enterprise affairs, said today in an interview at a conference in London. Population in West Africa has doubled every 20 years since 1960 and in cities the number of people has tripled, he said. “In West Africa, the natural resources are conducive to huge agricultural output, there’s water, there are a lot of hydro-resources,” Dahou said at the Agriculture Investment Summit. “Our agricultural outlook by 2050 is very optimistic in terms of the growth of the sector globally, and including in Africa.” Investment in West African agriculture will expand as the world tries to meet growing local and global demand, he said. The amount of capital invested per farmer in Africa is “very low,” one sixth of that in Asia and one fourth of that in Latin America , according to Dahou. That’s the reason why yields for many crops in the region are stagnant, he said. Ghana and Nigeria are leading investments in agriculture in the region, he said. Nigeria, which spends $10 billion a year importing wheat, sugar, rice and fish, plans to boost domestic food production by 20 million metric tons by 2015, according to Akinwunmi Adesina, the country’s agriculture minister. Cash crops such as cocoa and coffee in West Africa won’t be under threat as the region tackles food security and may even facilitate access to food as they bring in revenue, Dahou said. There’s enough land available to expand and improve yields for both food and cash crops, he said. “The issue is not really space, it’s intensification,” Dahou said. “That’s what African agriculture, especially West African agriculture, needs.” To contact the reporter on this story: Isis Almeida in London at ialmeida3@bloomberg.net To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net Continue reading
