Tasty fare for the canny investor
Look no further than your kitchen table to find the next long-term investment trend. Bets on water, ham, orange juice and eggs, to name just a few breakfast items, could all be worth their weight in gold as the demand for clean food and water rises against the backdrop of a growing global population, according to fund managers.
In trying to meet that hunger, governments and companies alike have stepped up efforts to boost production levels, make harvesting more efficient, and improve quality.
'People still have to eat and drink,' Hugo Rogers, a fund manager at Thames River Capital in London, said. 'And there are lots and lots of opportunities [in this area].'
Investments in soft commodities, or commodities that are grown rather than mined, were dragged down by last year's market crash, but have since rebounded. The Reuters/Jefferies CRB Index, which measures a basket of commodities, has climbed nearly 10 per cent so far this year.
But the case for investing in consumer essentials like food and water is less about timing and more about long-term demand. The growth prospects for the industry are especially attractive amid expectations of a prolonged global downturn that could sap consumer interest in discretionary goods.
Mr Rogers says soft commodities to some extent can be treated like an alternative investment as they have a weak correlation with the general financial markets. 'Making [such] investments makes more sense than investing in energy, which is sensitive to the economic cycle,' he said.
He recommends buying equities as the primary means of exposure to the field because they are simpler to trade, more liquid, and offer better diversification than pure plays on the commodities themselves. Local investors may choose to buy mutual funds rather than individual equities since most relevant companies are listed in US or European markets.
But there are a handful of food and water stocks listed locally. Investors could tap into the meat market through China Yurun Food Group or rice crackers through Want Want China Holdings. And both water suppliers China Water Affairs Group and Guangdong Investment Ltd trade in Hong Kong.
Apart from food and water, the pharmaceuticals sector also has resilient long-term growth prospects.
'There is no real relationship between the level of growth or contraction of the general economy and the demand for these products,' Michael Sjotrom, a fund manager at Pictet Funds, said. 'If you're sick, you're sick and you need to be treated.'
Investors should have at least a three-year time horizon for investments in this field to account for possible growing pains in the business, he said. 'Don't buy today to expect to fund your Christmas shopping with it ... because you might end up with nothing to show.'
Making the right choice
As demand for clean food and water rises against the backdrop of a growing global population, investment in soft commodities, or commodities that are grown rather than mined, look like a good bet.
How to invest
Buying equities is the primary means of exposure to the field because they are simpler to trade, more liquid, and offer better diversification than pure plays on commodities themselves.
Where to invest
Local investors may purchase mutual funds rather than individual equities since most relevant companies are listed in US or European markets. But there are a handful of food and water stocks listed locally such as China Yurun Food Group, Want Want China Holdings, China Water Affairs Group and Guangdong Investment Ltd.