The food and agricultural sector may not enjoy the high profile spotlight of tech companies, but global supply constraints and demand drivers make these stocks a very attractive component of any well-diversified portfolio.
This is according to Andrew Dittberner, Chief Investment Officer, Old Mutual Private Client Securities, who says that a variety of investment opportunities exist across the broad agricultural value chain. “The food and agri value chain runs from farmlands through various opportunities extending to downstream research and technology. A well-balanced and diversified portfolio would incorporate several of these entry points.”
There are many well-known and longstanding international brands in which to invest within the food and agricultural sector, Dittberner breaks down his two top picks as follows:
Nestlé is the largest food and beverage manufacturer in the world and boasts a broad portfolio of products, says Dittberner. “The benefit of scale is arguably most evident within the consumer staples sector where return on capital is consistently high, cash flow generation is also impressive and new entrants into the sector are rare. As a result, we view Nestle as a solid long-term defensive counter.
“As the world’s largest beer company, the ABInbev group enjoys leading market positions in the most important beer regions in the world, earning nearly 50% of all their profits in the global beer market,” says Dittberner, adding that when times are good, people drink and when times are tough people drink more. “As a result, ABInbev is viewed as a defensive, consumer staple business.”
Looking ahead, Dittberner says that one of the most exciting aspects of the food and agri sector is the research and development of new technologies. “Greater productivity and reduction of waste is imperative in this sector. We currently see encouraging innovation that will equip agriculture to intensify while improving land usage, combat climate change, and sustainably manage natural resources. All of these technological enhancements offer various investment opportunities.”
He refers to the PCS Global Food & Agri Portfolio, which has been designed to maximise investment opportunities presented by the favourable trends and long-term growth opportunities of food and agriculture. “The portfolio is comprised of companies at all stages of the agricultural value chain, and is suitable for long-term investors who seek a broadly diversified portfolio with exposure to global demand for nutrition.”
With global equity markets at or near all-time highs, Dittberner concludes that investors need to be seeking out segments of the economy that will give them long-term capital appreciation potential, but at a reasonable price.
Total shareholder returns of more than 100 global listed food and agri companies increased on average by 17% per annum in the ten years from 2004 – contrasting with 13% for energy, and 10% for information technology. The PCS Global Food & Agri Portfolio aims to outperform the Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) Select Agricultural Producers Investable Market Index (IMI) in US dollars, after fees, over a rolling seven-year period.