Australian investor portfolios currently have a relatively low exposure and therefore limited potential to take advantage of the growing agricultural sector, according to a whitepaper by BetaShares, a leading manager of exchange-traded funds.
BetaShares research found that the benchmark S&P/ASX 200 Index has significantly less than 1% exposure to agricultural companies. However, agriculture is a key global sector with the potential to enjoy solid long-term growth as the quantity of food demanded worldwide increases.
“The growth of the global population means the agriculture sector has compelling long-term growth potential as there are increasingly more mouths to feed. In addition, unusually extended periods of good global growing conditions have pushed many agricultural commodities prices to relatively low levels too, meaning the outlook over the short-term has good upside price potential should conditions change,” said BetaShares Chief Economist David Bassanese.
For example, after slowing from a 3% annual growth pace in the 1960s to a low of 1% in the late 1990s, growth in global grain consumption returned to a near 2% annual growth rate over the past decade largely due to rising demand from emerging economies.
“While agricultural prices tend to be volatile from year to year – reflecting the impact of weather on supply conditions – there is a clear underlying trend for growth and agricultural investments can play an important role in a diversified portfolio.”
“To invest in agriculture, investors can directly own grain, livestock or even farms, however these methods are not practical for most investors. Another option is to gain exposure through commodity price futures – though this is a sophisticated investment strategy not typically accessible to the majority of investors,” added Mr Bassanese.
“Exchange traded funds are a simple, cost-effective way for Australian investors to gain transparent and diversified exposure to agricultural commodities or agriculture companies.”
BetaShares currently offers two options for investors looking to access the agricultural sector:
• The BetaShares Agriculture ETF – Currency Hedged (synthetic) (ASX: QAG) enables investors to gain exposure to the $US performance of a basket of agricultural commodities
• The BetaShares Global Agriculture Companies ETF – Currency Hedged (ASX: FOOD) gives investors exposure to some of the world’s leading agricultural companies outside of Australia
READ BetaShares’ whitepaper The How and Why of Investing in Agriculture.
