Robert Jenkins, chairman of the Investment Management Association, couldn’t have picked a better time to have a go at his industry. Speaking at the body’s annual dinner last week, he criticised “our product development folks” for luring investors into fad sectors at the top of their cycles, says Kathryn Cooper in The Sunday Times.
In 1999 it was dotcom funds. Last year it was property funds and now, with rising food prices rarely out of the news, it’s agriculture funds. Eclectica Asset Management launches its second agriculture fund in June and Barclays and Barings are introducing similar products.
With overall food prices up 83% over the past three years and Eclectica’s top-rated Agriculture Fund having returned 35% since its inception in June 2007, you can see the logic behind the launches. But are the new funds likely to bring their buyers any better fortune than the dotcom and property sectors did?
Not everyone thinks food prices will keep rising. Sure, population growth and the diversion of food to bio-fuels are applying pressure to food stocks. But “there is still enough food grown to feed everyone”, says Michel Pimbert of the London-based International Institute for Environment and Development (IIED) on Tierramerica.
In fact, the United Nation’s Food and Agriculture Organisation forecasts a record output for world cereal production in 2008, with stocks up 3.8% this year on 2007 with increased yields reported across Asia, Africa and Latin America. Wheat prices have already come off and this week Thailand resumed rice exports, saying that there was no longer a shortage.
Still, that doesn’t mean that funds focused on the infrastructure of agriculture (such as the first Eclectica one or the US-listed agriculture ETF MOO) won’t keep doing well. All farmers are currently looking to raise productivity, so tractors and good fertilisers will keep selling well.
It might also be worth looking at Emergent Asset Management’s African Land Fund (ALF). Set for launch in June, it will buy farmland in Sub-Saharan Africa, where, thanks to a lack of investment yields prices have remained stagnant for decades and where the average cost of land is about $1,000 a hectare. That’s one-seventh the price of land in Argentina and could represent a real opportunity for investors who get in early.