How a bank can harvest a healthy global crop

Published on Friday 4 April 2008 22:18

WITH the average global growth fund having lost value over the past year, being able to buy into the prospects of companies set to benefit from rocketing food prices and improved productivity from agricultural land is both topical and appealing.

The Sarasin AgriSar fund launched last week with the objective of doing exactly that. Managed by deputy chief investment officer Henry Boucher, the fund already holds 49 of its targeted 50 to 60 stocks and has seen significant interest from both institutional and retail investors. Boucher is comfortable with this as he sees the fund "as a long-term hold, due to the inevitable volatility in the short term".

With the recent success of a rival's soft commodities fund and regular headlines about food price inflation, some might accuse the UK investment arm of the Swiss bank Sarasin of jumping on the bandwagon. However, nothing could be further from the truth. Sarasin has been steadily building an exposure (now 150 million) in global agricultural stocks across its main portfolios for the past 18 months and, according to Boucher, "it is not realistic for a long-only UK or global equity manager to suddenly decide to launch a soft commodities fund and expect to succeed".

Boucher believes that Sarasin's own in-house research team, coupled with the resources available from their majority shareholder and leading agricultural bank, Rabobank, gives them a competitive edge.

Sarasin is a thematic investor and has underpinning themes for the AgriSar fund. These suggest that the agricultural economy must grow wealthier and that technology is the only long-term solution, so finding and investing in companies that can provide these technological solutions should bring rewards.

Another fundamental is the inextricable link between food and politics. Boucher said: "There have been food riots in 17 countries around the world over the past two to three years. The baseline for any politician is that if you can't feed your population you're in trouble."

As global population grows so does the demand for food, but the amount of agricultural land has not grown at a comparable rate. Companies delivering fertiliser and pest control are well placed, as are so-called agri-banks. As Boucher explained: "Bank valuations have been hit hard as a result of the subprime crisis, but if you are a bank with your core business lending to Brazilian farmers, you're in a good position."

&#149 The Sarasin AgriSar fund will be placed in the IMA "specialist" sector. The initial is 5 per cent, with an annual management charge of 1.5 per cent. There is also a performance fee of 15 per cent on returns above the MSCI World Equity index.

The fund is structured as an open ended investment company (Oeic) and is also Isa compatible. For more information call 020 7038 7005.

&#149 Barry O'Neill is a director with Thomson Shepherd.