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Health, trade offer extra reasons to back ag investment - BlackRock

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The much-vaunted theme of growing global population and wealth is not the only reason for backing ag investment, a director at BlackRock said – highlighting the outperformance of farm sector shares.

Skye Macpherson, a portfolio manager for the asset management giant, acknowledged the importance to the agriculture investment case of the increasing consumption needs prompted by expanding, and increasingly wealthy, emerging market populations.

However, she flagged two lesser appreciated themes too – the shift in developed country diets towards healthier diets, which she said was beginning to create "real interest" among investors, and growth in global trade.

Such ideas offered prospects for long-term returns from agriculture sector equities, which already have a record of outperformance, having returned 14.1% since September 2001, as measured by the DAXglobal Agribusiness Index.

Returns from agricultural commodities themselves have been a negative 1.8% over the same period, as measured by the S&P GSCI agriculture index, while global stocks have returned less than 5%, as measured by the MSCI world index.

Health benefits

Speaking at the Agrimoney Investment Forum in London, Ms Macpherson – responsible for agriculture coverage in BlackRock's natural resources equity team - noted that the trend in healthier eating is becoming much more affordable and increasingly "more mainstream".

This trend is highlighted in the US by robust growth in the household demand of plant-based beverages, viewed by some consumers as more healthy than dairy alternatives.

Total US natural and organic food sales rose by an annual compound growth rate of 12% from 1997-2015 and now account for an estimated $70bn market.

Anecdotal evidence in the US indicates that supermarket shoppers spend around 38% of their time in areas containing fresh foods sections, compared with only 12% in central aisles reflecting a greater desire for healthier eating.

'Higher level of return'

On globalisation of trade, Ms Macpherson said this theme "will create increased opportunities for investment in the long term", given the prevalence of crop supply deficits and exportable surpluses across different geographies.

"Ag equities give exposure to volume growth in the agriculture industry" - to the increasing crop volumes being sent from exporting countries to importers in the likes of the Middle East and Asia.

Already returns from agriculture companies have proved "quite attractive over the long term, on a risk adjusted basis".

Certainly, agriculture sector shares have an above-average risk profile, and indeed shown a "similar level of volatility to emerging market equities".

But they have shown a "higher level of return" to emerging market stocks, as well as to broader global shares.

By Abah Ofon

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