Food Glorious Food
Posted by jdavis on August 18, 2010
Dear Client of Jonathan Davis Wealth Management
Many of our clients are invested in the Eclectica Agriculture Fund which invests in companies related to the world of growing things for us to eat. I attach the most recent fact sheet.
As the fund manager says, during 2007/08 ‘agri’ moved from the inside pages to the front pages and became the major investment topic of the time. For good reasons, namely,
- The world population grows by the equivalent of a UK every year
- More land is used for ethanol rather than grain
- The currency for ‘soft commodities’ is the US $ which is in long term decline.
Then we had the biggest economic and financial bust in history. Pretty well all commodity stocks tanked. However unlike, for example, gold stocks which rocketed (up over 200%!...by which time we reduced our exposures) agri stocks did not rise. There were reasons for this – political and bumper harvests. Those issues have now fallen back and agri has returned as an important theme. (I’m not saying poor harvests are positive but they are at least for investors… You will recall we are politically agnostic here [except to say they’re all a shower!])
In all the sales we have recommended over the past 6-9 months we have not recommended selling any of the Eclectica Agriculture holdings. This was because we remained of the view that agri had a great long term future for investors, as I have said, consistently, from 2007 onwards. I expected the pick up to restart relatively soon.
I refer you to this recent Telegraph article to give you a flavour (sorry!) of what’s going on in food production: Telegraph: Brits to pay more for a loaf of bread
Please also see this report from the BBC today: BBC: BHP hostile takeover of Potash – A huge international commodity company offering to buy a huge player in fertilizer. Thus, we see consolidation of companies in this sphere. On the news, yesterday, the price of Potash shares soared. No doubt, this will raise prices in other agri stocks. We believe this is the ‘kick’ agri has needed. As far as we are concerned, the next major leg up in agri stocks has started and our clients should benefit greatly.
The Eclectica Agriculture Fund had c 6% of its holdings in Potash at the end of June.
I shall contact some clients this week to make further purchases in this fund as part of long term holdings. This will be only for clients who have told us they can accept greater volatility than those with more cautious portfolios. Our agri holding aims to be a a long term strategic holding.
One final comment, the legendary commodity investor Jim Rogers (original partner of George Soros in the Quantum Fund and one of my heros) says of what to invest in:
“Lamborghini franchises in the US Mid-West. Because that’s what the farmers will be driving a decade from now.”
As regards recent major fund allocations that we have recommended, they are very well positioned for this general downward march of the markets. The S&P is currently over 10% down from the April high and we have strong reason to believe that we ‘ain’t seen nothin’ yet’. If the fall continues, our clients will do exceptionally well.
In case anyone continues to hold large amounts of €uros, we suggest you divest sharpish. (We have advised clients to divest of €uro holdings during the last couple of months.)
After ‘staycations’, due to soaring €uro, we can all holiday in La Dordogne again. :>
Thanks to Angela Merkel, who needed to buy votes, the € is now busted. Our clients, who we advised to go to €uro a couple of years ago, have done very well out of that move. (We do not currently charge for currency advice.)