Funds Targeting the Agricultural Sector Provide Optimism Amid Deteriorating Market Conditions
June 1, 2022 — London
The small agriculture- and natural resources-based sector is growing as investors position to protect against rising inflation and a challenging macroeconomic environment
Agriculture- and natural resources-based funds in the commodities and equities segment have fared well in 2022, despite a challenging market and macroeconomic scenario in Europe and at the global level, according to the latest issue of The Cerulli Edge―European Monthly Product Trends.
Such funds have benefited from rising inflation and increased attention from investors seeking ways to protect their portfolios from the ill effects of current market conditions.
“The agriculture- and natural resources-based fund sector remains relatively small in terms of assets under management (AUM), but is growing, with different product providers targeting agriculture in various ways—for example, via direct exposure to commodity prices or by focusing on technology as an enabler of enhanced food production,” says Fabrizio Zumbo, director, European asset and wealth management research at Cerulli Associates.
The commodities space is one of the few areas of the market where investors and managers have been rewarded so far this year. Annual inflation in the euro area was 7.5% in April 2022, according to Eurostat, resulting in increased conversations between asset managers and clients seeking investment protection against rising consumer prices, for instance in food and energy, and their potentially negative effects on asset prices.
AUM in funds exposing investors to the price of commodities such as wheat, corn, and soybeans more than doubled in the first four months of the year, rising from €121.7 million (US$130.3 million) to €268.6 million, according to Morningstar data.
The price and supply of wheat is a major talking point from Russia’s invasion of Ukraine. The two nations together account for more than a quarter of the world’s supply of wheat. International buyers have turned to other source countries, such as India. However, India’s recent move to restrict exports, amid severe heat waves in the country that are hurting crop growth, sent wheat prices noticeably higher.
Zumbo notes that some asset management firms have launched products at the intersection of agriculture and technology, with a focus on the latter’s ability to enable enhanced production. Other managers have wrapped their conviction for the agricultural industry within broader commodities products.
Many emerging market investors have suffered this year, with the fallout from the war in Europe and rising cases of coronavirus in China, shifting the outlook for several developing nations. However, some countries—in Latin America, Africa, and the Middle East, for example—have been aided by rising energy and food prices. AUM in Brazilian equity funds rose 62.2% in the four months to the end of April, increasing from €1.4 billion to €2.3 billion. Brazil, a key commodity exporter of resources such as soybean and corn, has benefited from rising prices.