Keeping the world fed and watered isn’t just a priority for the planet. It’s also an opportunity for investors with a longer term view to cash in on the future needs of a booming global population
At the last count, there were 7.108 billion people in the world, and counting. (That wasn’t a proper count, incidentally, but an estimate by the US Census Bureau). And the best US estimates currently suggest that we’ll pass eight billion by 2027 and nine billion by 2046. (The UN’s own projections are slightly faster.) But, whichever version you believe, that still means that there are going to be an awful lot of mouths to feed.
So you might suppose that there was nothing quite so certain as farming and water, and that funds ought to be onto a guaranteed winner. But, although that’s probably true over the long term, the short-term volatility can be surprising especially for food companies. Food harvests rise and fall sharply from year to year; governments sometimes enact awkward policies toward ground-breaking new agricultural technologies; and you’re never more than a few steps from the hurly-burly of the commodities markets.
Consequently, most of these funds are rated at slightly above average risk. That shouldn’t deter an investor with a medium term view, however.
First State Global Agribusiness
First State Global Agribusiness, an OEIC founded only in May 2010, is one of the many funds currently vying for the food investment market. Like many other funds of its type, it combines a strong interest in food producers and agricultural commodities with a meaningful shot of investment in biotechnology (Syngenta and Monsanto), and with agricultural engineers such as Deere and Kubota, both of which make farm and food processing equipment.
In fact Syngenta and Monsanto represent the fund’s two largest holdings – accounting for 8.42% and 7.01% of the portfolio respectively. Other significant holdings, however, include the US/Dutch food giant Bunge, which exports soya, maize, beef and cooking oils to much of the developing world; Brazil’s BRF; and America’s Tyson Foods and Archer-Daniels-Midland. Overall, the fund is quite small, being valued at only £30 million.
Exposure to the developing markets is moderate, with Asia (excluding Japan) representing about 14% of the portfolio and another 5.2% in South America. North American companies account for 44% of the portfolio, and western Europe for another 20% (of which the UK represents 3.35%).
The fund made a storming start in 2010, achieving a 33% total return within just ten months of its launch, but it has not been spared the slings and arrows of outrageous fortune since then. Fortunately it recovered very well from a low in October 2011 to attain a 39% overall return by the time March 2013 came along. Since then it’s been fluctuating in line with confidence in the emerging markets, and by early September it was 23% ahead of its launch price. A creditable achievement, considering the general market turbulence in the sector.
Minimum investment is £500, and initial charges are 4%, followed by an annual management charge of 1.5%.
Allianz RCM Global Agricultural Trends Income GBP
If you think the volatility experienced by the First State fund was too much to pay for being in a key sector, you might be impressed by the relative price stability of Allianz’s RCM Global Agricultural Trends Income fund. This SICAV, run from San Francisco, is somewhat larger than the First State fund, with £247 million under management, and its largest holdings are almost identical – the same mix of foods, agrochemicals and tractor makers – but what’s different is that it focuses much more intensively on the developed world.
Apart from Latin America (7.6% of the portfolio) and emerging Europe (5.3%), its exposure is almost exclusively to the developed markets: emerging Asia accounts for just 1.0% of the fund’s investments. And North America accounts for a whopping 67.4% of the portfolio.
And the result? The good news, as we’ve said, is that First State’s rollercoaster experience since May 2010 has been largely avoided: the bad news is that the overall return since then has been limited to just 25%, and the fund is still range-bound at the levels of December 2011.
Would a 1.48% p.a. historic dividend change your mind? Probably only if you could avert your gaze from the 45% improvement in the S&P 500 over the same period. Further proof, it seems, that a combination of slowing emerging market demand, poor harvests and difficult market conditions have been taking their toll.
This shouldn’t deter long-term investors with a view to profiting from global demand. But the comparison with the First State fund suggests that, when it comes to food funds, fortune may indeed favour the brave.
Fees are slightly higher than for the First State fund, with initial charges coming in at 5%, followed by an annual management charge of 1.75%. Minimum investment is £500.
Pictet Water Fund P GBP
For a UK investor, the tendency these days is to think of water as a high-yield corporate investment with relatively limited upside and fairly heavy debts, but with particularly nice dividends which tend to be underpinned by reasonably generous government price controls. And that’s fair enough, in its way, as far as the UK is concerned. But a growing number of investors are now appreciating the advantages of diversifying their holdings instead into other major world markets.
The Pictet Water Fund P dy, a SICAV domiciled in Luxembourg, plays it unusually safe, with a hefty 48.4% of its portfolio being invested in North American companies, and only 8.9% in the UK, plus another 19.7% in the rest of continental Europe.
It does have 6.9% invested in Latin America, 4.11% in emerging Asia, 4.7% in Japan and another 5.5% in developed Asia – but with four fifths of its cash in the developed world it isn’t hugely exposed to the emerging markets.
That conservative approach doesn’t seem to stand in its way at all, however – the fund’s 14.64% total return in the twelve months to end-August, and the 10.37% gain in the twelve months before that, would have placed it well ahead of most UK investment sectors. And overall, the fund’s 36.72% return over five years puts it well ahead of its class.
Nor would it be correct to assume that the Pictet fund invests only in water companies. Quite the contrary – only 38.9% of its holdings are actually in utilities, with another 54.1% being invested in industrial companies, 6.1% in consumer goods and basic materials, and 1.4% being held in cash. Key holdings include America’s Danaher Corp (4.13%), which develops largely scientific technologies, and Switzerland’s Pentair (3.02%), the former Tyco Flow Control International, which specialises in fluid management systems. More familiar to UK investors will be its holdings in Pennant Group (3.39%) and Suez Environnement (3.37%).
Initial charges of 5% are widely discounted, and annual management charges thereafter are 1.6%.
Lyxor International Asset World Water Management
And so to the most long-term profitable of the water funds currently available to UK investors. The Lyxor International Asset World Water Management (WATL), domiciled in France, has been operating since October 2007 – not an auspicious piece of timing in view of the forthcoming stock crisis – but its revival since late 2008 has been as smooth as it’s been impressive.
From a bottom that touched 40% below its launch price, the Lyxor fund touched 48% above launch in May 2013 – yes, it nearly doubled from trough to peak – before settling back to a mere 40% above the levels of six years ago. And the fund has achieved 16% growth during those last nine months alone.
What’s different? Perhaps that the Lyxor fund invests predominantly in actual water utility companies – American Water Works, Severn Trent, Veolia, United Utilities (which also has electricity interests), and Brazil’s Companhia de Saneamento Basico. Its non-water interests are broad to put it mildly – the fund’s biggest holding is in Geberit, a manufacturer of bathroom and sanitary equipment – but they also include Switzerland’s Pentair and the US company Xylem, which manufactures waste water and environmental applications and testing equipment.
Overall, the fund has achieved an outstanding stability and should interest clients with an interest in largely European utilities. The fund is only about €70 million, which is small by the sector’s standards – but, as small packages go, this one has a justifiable claim to be good.