According to estimates from the United Nations, the world’s population is set to swell from 7.2bn people today to roughly 8.1bn by 2025, which means there will be significantly more mouths to feed. As a result, the agronomics universe has never been more important.
Gertjan van der Geer, co-manager of the £186m Pictet Agriculture fund, describes the sector as a “long-term mega trend”.
Launched in September 2009, the fund seeks to deliver capital growth by investing primarily in a diversified portfolio of companies operating in the “agribusiness value chain”. The fund managers particularly favour companies operating in production, packaging, supply and the manufacture of agricultural equipment.
Mr van der Geer says: “The aim is to invest in agricultural equities, which make the sector more efficient and help solve the global agricultural imbalance.”
With roughly 54 positions, the fund has a reasonably concentrated portfolio – and on a risk scale of one to seven, it lies at the volatile end with a ‘six’ and ongoing charges of 2 per cent.
The portfolio has no geographical restrictions but approximately half of its investments are US-based. Mr van der Geer explains that one area of great attraction is the farm inputs, which essentially summarises anything farmers use, from tractors to fertilisers. The fund therefore has significant holdings in agricultural machinery.
The investment process has not fundamentally changed since the fund’s inception, however it has evolved. He says: “We have a board that signals new trends to us; we added food packaging, for example.”
While the macroeconomic backdrop plays a part in how the fund is run, the more pertinent influence is the weather. Mr van der Geer says: “This is a cyclical growth sector and the cycle depends on the weather and crop prices. If drought hits the corn belts, the price will rise and farmers will then plant more, which in turn is likely to send the cost down.”
Recently the management team took advantage of the value on offer in the machinery sector and added to positions in Agco and Kubota.
The performance yardstick for the fund is the MSCI World index, because “there is no benchmark that reflects properly what we do” asserts the manager. Since its launch just over five years ago to September 22 this year, the portfolio has achieved a return of 44 per cent, while the index is ahead by 70 per cent.
Looking more recently, during the past 12 months the fund has delivered 5 per cent versus 10 per cent from its MSCI yardstick, according to data from FE Analytics. Performance in the past year has been largely influenced by the volatility in the soft commodities sector, an issue Mr van der Geer has stabilised recently.
What has helped drive performance, he says, are corporations in the food ingredients and packaging industries, such as Ball Corporation.
Looking at the sector as a whole, he says “the story is free cashflow – those companies focusing on improving their operations and using their assets well. The segment has proven very attractive.”
