Thesis’ Hoggarth: Ploughshares into smartphones

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We introduced a thematic equity weighting to agriculture and food production just over two years ago. Recently, we have moved away from this theme and towards technology and UK equities.

An exposure to soft commodities had been under consideration, but we could not find a fund with an active strategy that won our full confidence and passive instruments such as exchange traded commodities can be costly in periods without strong market moves due to the roll yield – the expense of selling futures contracts that are about to expire and replacing them with more expensive longer-dated contracts.

Equities in the agriculture and food production sectors seemed to allow us to profit from the same drivers that made us bullish about the agricultural commodities: increasing wealth in emerging markets creating demand for non-staple foods, coupled with investment and innovation to increase agricultural productivity and produce food more efficiently for a growing global population.

The Sarasin Agrisar fund invests through all stages of the food production process from field to fork, and is showing first quartile performances against its agribusiness peers for the duration of the time we have been holding it, as well as outperforming the soft commodities, but the risk with a field to fork philosophy, especially as a fund grows, is that it can lose some of its focus and differentiation and become more correlated with broad global equity market trends.

For example the fund has bought medical device companies as a response to rising obesity trends. Additionally with global growth still stubbornly on a rather feeble path the drivers of the sector are taking longer than anticipated to have their effect.

For these reasons we are moving the agriculture theme to a hold. For new clients we are increasing the weighting to the technology theme, where developments in areas such as the mobile internet, cloud computing, software as a service and big data have the potential to drive sales at innovative companies even as some of the incumbent technology giants fall by the wayside.

The remainder of the former agriculture weighting is being added to UK equities, where our screening shows good value and the recent pull-back may provide a favourable entry point. This will take us overweight in UK equities in the higher risk mandates from next month, as APCIMS plans to move 2.5 per cent from UK to international equities in the Income, Balanced and Growth benchmarks.

Matt Hoggarth is an investment analyst at Thesis Asset Management