Sarasin Food & Agriculture Opportunities Fund research update
Heather Ferguson | Wed 24 June 2015
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The global population is growing and is estimated to reach 9.22 billion in 2075; a 26% increase from population levels today. The argument for investing in food and agriculture is simple - people need to eat and in 60 years there will be 1.9 billion extra mouths to feed.
Henry Boucher and Ed Bailey, managers of the Sarasin Food & Agriculture Opportunities Fund, seek to invest in companies set to benefit from this growing demand for food. They invest from field to fork with holdings including farms, retailers and restaurants. As they are keen to identify growth opportunities, around 30% of the fund is invested in the higher-risk regions of Asia and emerging markets. In their view, much of the farming in emerging markets is currently inefficient and done by hand, whereas farming in the US is an exact science with little room for improvement.
The managers adopt a thematic approach and begin with the big picture, exploring global topics such as increasing wages in emerging markets. This leads to the identification of key behaviours which they use to determine specific areas of growth. For example, the managers feel rising wages in emerging markets will result in a shift from subsistence diets to one including more meat, fresh fruit and vegetables, dairy, wine, restaurant meals and processed food.
The companies able to benefit from this theme are diverse. Petra Foods, a chocolate and confectionary brand, estimate their regular customers in Indonesia could double to 60 million in the next five years as incomes improve. Henry Boucher and Ed Bailey therefore expect a dramatic increase in the firm's profits over the coming years and the company is a large position within the fund.
Elsewhere, the managers are positive on International Flavours & Fragrances which, among other things, create flavourings for the food and beverage industry. As demand for foods such as yogurts increase, demand for their strawberry flavouring also rises. In addition, as consumers become more conscious about the level of salt in their food, producers are looking for innovative ways to flavour their products - an area the managers feel presents a long-term opportunity to the business. Their customers are usually highly loyal as businesses are unlikely to take the risk of switching providers for the ingredients that determine how their products taste.
Another theme the managers have identified is a move from 'bricks to clicks'. The managers are positive on companies such as Ocado which are benefiting from the increasing trend of consumers shopping online for their food. The managers adopt a concentrated portfolio which enables each holding to make a significant impact on returns however this is a higher-risk strategy. They also have the flexibility to use derivatives should they see fit which increase risk.
Our view on this fund
Increasing food consumption, growing populations, and escalating wealth in emerging markets, should be supportive factors for the agricultural theme over the long term although as a specialist fund we would expect periods of volatility. The fund struggled when global markets fell following the financial crisis and performance has been inconsistent since. We are therefore not currently considering the fund for inclusion on the Wealth 150 list of our favourite funds across the major sectors.
Find out more about this fund including how to invest
Please read the key features/key investor information document in addition to the information above.