The markets ended 2018 on a low with global economies and politics in disarray as a result of trade wars between China and America, unprecedented global debt levels, the threat of recession in America, increasing evidence of a Chinese slowdown and of course the thorny issue of Brexit closer to home.
How the markets will perform in 2019 is anyone’s guess at this stage, but that is not to say that investment opportunities do not exist for eagle eyed investors, even in the trickiest of scenarios.
I have mentioned our sustainable portfolio in previous columns, and I am pleased to report that some of our sustainable investment themes performed very well during last year.
Though past performance cannot be considered to be a guide to future performance, these specialist portfolios could hold the key to some interesting alternative investment strategies whilst stock markets remain challenging.
Agriculture is one such theme that is acting as a portfolio diversifier. As the global population increases and the middle classes of the Emerging Markets develop sophisticated Western tastes, the demand for diets rich in protein and healthy ingredients is escalating. This is not just the case where people are concerned, indeed farmers are becoming increasingly aware of what they feed to their livestock to produce the best quality meats.
This cultural and demographic shift has driven investor interest in soft commodities, agriculture products and associated technologies.
Opportunely, valuations of agriculture related assets are historically cheap at present, trading at a discount to most sectors, which presents an attractive entry point.
Whilst we believe that global economies are positioned towards the latter stages of the industrial and business cycles, research suggests that we are only midway through the current agriculture cycle, hence the outlook for the sector appears positive.
Many sectors have benefited from the quantitative easing programme of the last decade, however, soft commodities, and shares in companies connected to agriculture, have performed poorly when compared to other asset classes. This leaves the agriculture theme under-owned and subject to potential investment inflows.
Investors seeking alternative investment strategies, and those keen to add a sustainable element to portfolios, can gain exposure to agriculture in a variety of ways.
One option is through investments directly involved in the production and supply of soft commodities. Alternatively, further diversification can be sought via assets connected to the wider agriculture theme, for example specialist technology and infrastructure.