First State Global Agribusiness – fund launch

Richard Troue | Tue 08 June

By 2050 the world population is set to hit 9 billion people, up from just under 7 billion today and quadruple the level of 1950. Much of this growth is expected to come from emerging markets, which are also becoming more affluent. To capitalise on this trend First State has launched the Global Agribusiness Fund, which aims to benefit from what they believe will be significant growth in demand for agricultural products, as consumption in emerging markets increases.

The fund is managed by Renzo Casarotto and Skye Macpherson who are part of the First State Global Resources Team, which has over 12 years’ experience successfully investing in resource companies. This fund is viewed as an extension of that process and will invest in companies involved in the production, processing, distribution and marketing of agricultural products.

Wealthier populations tend to increase food consumption and change their diets, eating more meat which is much more agriculturally intensive to produce. As a rule of thumb 1kg of beef production requires 7kg of grain and up to 15,000 litres of water! This puts increasing pressure on the production of cereals and fresh water with estimates suggesting twice as much food will be required in 2050 as in 2008.

The problem is exacerbated by a decline in the amount of land available for agricultural use and a trend towards rural populations migrating to urban areas to seek a more prosperous working life. First State believes companies helping to produce more food from the available land will therefore deliver strong growth over the long term.

We have been supportive of the First State Global Resources Team for a number of years and admire their experience and pragmatic approach. They don’t forecast commodity prices, which can be volatile, so they won’t buy into a wheat producer, for example, purely on the belief the price will rise in the short term. Instead they focus on high quality businesses which have significant growth potential, as they believe this will lead to higher returns over the long term.

At launch two of their largest holdings are Syngenta, who specialise in crop disease protection, and the world’s largest fertilizer company, Potash Corp. They have also invested in companies which produce agricultural equipment, such as Japanese company Kubota which is benefiting from the increased mechanisation of rice planting and harvesting in Asia.

Around one third of the fund is invested in America and 20% in Canada. They will also invest in faster growing emerging markets including China and Brazil, which is considered by First State to be a growing force in world agriculture. Please remember emerging markets are higher risk and will be more volatile than developed markets. The fund can also invest in smaller companies which are more volatile than their larger counterparts. This will be a concentrated portfolio of between 25 to 75 stocks which will allow the managers to invest in their highest conviction ideas, but it can also increase risk.

The increased pressure placed upon agricultural production by demographic issues, rising energy prices and climate change is likely to drive up prices for everything from land and fertiliser to storage and transportation. Although investing in a specific sector carries more risk than a diversified portfolio. We believe there are significant opportunities in this area for investors who are able to accept the risks and take a long-term view, but we would like to see how the fund performs before considering it for inclusion in the Wealth 150 list of our favourite funds in each sector.

Key Features of the First State Global Agribusiness Fund

The value of investments can go down as well as up, this means you could get back less than you invested. Therefore all investments should be regarded with a long term view. No news or research item is a personal recommendation to deal. If you are unsure about the suitability of an investment please contact us for advice.