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Investing in the global agri sector

Simon Brown labels it as a defensive play and looks at an ETF option to consider.

MARC ASHTON: Welcome to the Moneyweb Offshore Investing podcast, today I’m joined in studio by Simon Brown from JustOneLap. Simon, thanks for joining us

SIMON BROWN: Thanks, Marc, my pleasure.

MARC ASHTON: We’re sitting here, we’re looking at the Bloomberg screens at the moment, they’re talking beef and we’re thinking, really interesting, it’s an interesting commodity. This whole agri play is very topical at the moment and it brings me back to a memory I have of Jim Rogers being on CNBC and he was saying in future the guys who are going to be driving Ferraris and Lamborghinis are not going to be investment bankers, they’re not going to be lawyers, they’re going to be farmers. So let me start asking you, are you a bull on the global agri sector?

SIMON BROWN: The short answer is yes, I think Jim Rogers is right because if the bankers and stockbrokers disappeared we would notice but I’m not sure that we would miss them, if the farmers disappear we are absolutely doomed. The trick with being a farmer is that it’s tough, it really, really is tough. So what we’re looking at here is an ETF that supports farmers, provides fertiliser and tractors and then will buy your beef that we’re seeing on Bloomberg, and package it and sell it onto consumers. So kind of everything but the actual hard part of farming.

MARC ASHTON: So that’s interesting when you look at the local components again and it’s always fascinating when you suddenly look at the global marketplace and you realise just what a big market there is out there. In South African terms you look at Omnia, solid performer, explosives, chemicals etc, in the faming space you’ve got Zeda, the next really are down the chain in terms of your Tiger Brands, your Pioneer, etc. We don’t have anything that gets you primary, at source exposure to an agri sector, barring, say, Zeda. So let’s go and say what are your options if you’re going to play in the global market place.

SIMON BROWN: So I found this ETF and it’s BlackRock iShares, it’s on the MSCI Global Agricultural Producers Index, so this is a broad index and they’ve obviously issued an ETF on it. It’s actually quite recent, only launched in the beginning of 2012 and really what they’re doing is they’re bringing together those companies that support it, so top of the list is Monsanto, a lot of folks might not recognise it, some might have moral objections to it but there it is, there are more chemical companies, we’ve got potash companies, Deere & Co who provide the tractors and the like. So really, again, those supports around them, the machinery and etc. One of the risks to farming is lack of rain or floods and the like, these guys are obviously going to have it tough if the framing industry is having a tough time, if there are droughts the farmers have less money, they plant less crops, your fertilisers, your seeds, your tractors have less sales. So you can tell when there’s been a great season down in the rural farm areas, they’ve got a new Mercedes and new tractors. But what we get here further is the driver of, again, urbanisation, increasing populouses within the cities, moving towards increasing middle classes and the like who are shopping more, eating more, as opposed to very old school, grow your own. But I almost want to say we don’t eat more, we buy more food as we get richer, we eat the same amount but it’s the waste in a sense almost as well.

MARC ASHTON: My grandfather used to tell me bread and beer, those are the two most defensive businesses you could effectively be in. Bread obviously the idea being you get into the basic food groups. Do we consider agri a defensive sector or do we actually see it as quite a volatile sector? Going forward obviously there is consistent demand for food but you’ve got the rain, you’ve got weather, you’ve got a lot of factors that influence performance, is it a defensive play?

SIMON BROWN: I think it is defensive, you’re 100% right on droughts and rain and locusts and the like, how they are managing. So 49% of the companies in here are
US-based companies, the US is a giant country in a stock, so at the moment there is a chronic drought in California but not in other parts of the country, but they’re in Canada, Switzerland, Japan, Norway, Malaysia, China, Germany and the United Kingdom. So do we have droughts in all of those territories, no, still a very high US concentration make no mistake about it because agricultural is volatile, food is defensive in a sense. What we’re seeing here is they are managing that volatility, that risk, with that geographic diversification.

MARC ASHTON: So one of the questions that’s obviously popped up when we were looking at the talking heads on the TV here and they’re talking beef and this is, excuse the pun, a bull market. Are we saying why should we pick an ETF with a basket of offerings particularly your Deere & Co, Monsanto, etc, why not just go and pick a single commodity?

SIMON BROWN: So this is what I always do, I remember the first time I opened Webtrader and had a look at it, and there were plus 20 000 shares, I shut it down in panic, I’m used to 400 or 500 on the JSE. So then I got clever and I thought I’ll look at the ETFs and again in the US over 1 000 ETFs within the Webtrader environment. It comes to what do we know, the time we can put in, so if we say let’s go and pick a commodity, in the US you’re probably going to have to dig through 50, 100, 200 different stocks to find the commodity, to do that research, to decide this is the one that I particularly want. For a person whose fulltime job it is and you’re an analyst and this is your sector of expertise, brilliant, there’s a fulltime job and you’ve got a team of people. For the average Joe like me and you it’s a case of, well, we think there is something happening here, we scratch around, we immediately start looking in the ETF space, so we start off with about half a dozen or so. There were in truth in the broader agricultural space there were about 15 or 20, I immediately narrowed it down, I said I don’t want the commodity, I want the support services, chopped it down to six, a nice easy choice then.

MARC ASHTON: You talk there about choice, global choice, massive marketplace, 20 000 ETFs to pick from, a really incredibly large market, how does somebody remember the code for this particular ETF?

SIMON BROWN: This is the easiest code in the world, VEGI.

MARC ASHTON: And this is available for trade on the Standard Bank Webtrader platform?

SIMON BROWN: Absolutely.

MARC ASHTON: Excellent. Simon, thanks for joining us in the studio today.

SIMON BROWN: Always a pleasure.

** This is a sponsored education series focused on offshore investing. The content is sponsored by Standard Bank Webtrader and Moneyweb are the content creator.

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