Agricultural funds on the rise
Barings, Castlepoint, AIG, Eclectica, to name but a few, have all set up agriculture funds in the past 12 months to cash in on expected commodity price increases. And if returns to date are anything to go by, more will be joining them.
The CF Eclectica Agricultural Fund is up more than 35% since inception in June 2007, for example. Compare that with the MSCI World returns of less than 1%.
Jonathan Blake, who will be the manager of the Baring Global Agriculture Fund, says it is a case of pure fundamentals. "With the world’s population growing at around 80 million per year and meat consumption rising sharply as a consequence of rising incomes (particularly in India and China) pressure on food prices is immense," he says. "In addition to these factors, interest in biofuels is further increasing demand for soft commodities. Limited resources and bottlenecks mean that supply is struggling to keep pace with demand whilst global warming is likely to create additional pressure on supply in the years to come. We therefore believe that agricultural investment is emerging as an attractive long-term investment theme that should have a place in all well-diversified investment portfolios."
Blake says the fund will look at commodities as well as companies that relate to agriculture, such as infrastructure or fertilizer suppliers. Emerging markets offer better agribusiness opportunities than their western counterparts, Blake believes. "Brazil and Argentina have two of the most efficient agrarian sectors in the world thanks to natural rainfall and fertile soils, and the importance of agribusiness to their economies reflects this," he says.