increase in the prices of
food items continues to be a persistent problem for the economy. The
turmoil in North Africa and Middle East has already raised the crude
which will again lead to higher fuel prices. All these factors are
increased cost of living and people would have to pay more from their
inflation is a cause of concern to everyone, the policy makers, the
common man and
expenses thereby, reducing the investment money available with you
the ‘real’ returns earned by your investments. Real
returns are the returns
earned by your investments minus the rate of inflation. So, on a given
having a certain
rate of return on your
investments means a higher inflation rate would give way to lower real
- High levels of
inflation generally forces the central bank of that country (RBI, in
to hike interest rates which impacts equities and debt assets
Food Inflation: A cause of
One of the
to high inflation
in India is the persistent rise in the prices of food articles.
inflation is not localised to India but is impacting the whole world.
chart 1 on the side, shows the rate of food price increase across the
sharp rise in the FAO Food Price Index published by the UN Food and
department and the rise is much higher in comparison to that of India.
|Chart 1: Food price
in India and World
an opportunity to profit
are very few
available in the India that could help an investor profit from food
inflation. Here, either you will
have to use commodity
futures from the commodity exchanges or you can consider DWS Global
Agribusiness Offshore fund.
Global Agribusiness Offshore fund
Offshore fund (offshore fund) is an overseas Fund of Funds (FoFs) which
into DWS Invest Global Agribusiness Fund (underlying fund). The
is managed in India by Aniket Inamdar and Kumaresh Ramakrishnan and the
underlying fund is managed by Dr. Oliver Kratz. The
offshore fund was incepted in India on 14
May 2010. The underlying fund does not have a benchmark. However, in
fund has MSCI World Index as the benchmark following SEBI norms which
every fund to have a benchmark.
theme is based on investing in businesses that service and earn profits
increasing global population, rising income of the people (especially
developing world)and limited land/water resources. All these factors
companies orient themselves towards the agriculture sector to earn
the long run.
underlying fund does not
seek to profit by investing into futures of food commodities, as this
increase food prices and can be the cause of socio, economic and
crisis across the world. However, the fund seeks to profit from the
the share prices of agriculture related companies. The fund will invest
companies that profit from the agriculture sector i.e., right from seed
fertilizer manufacturer to supermarkets.
fund has a
of less than one year, it has already outperformed SENSEX and MSCI
World Index (in INR) by good margin. As at 25 March 2011,
has given 20.3% since its inception, while SENSEX and MSCI World Index
given 9.0% and 14.0% since the fund’s inception.
shows the performance of the fund against the performance of SENSEX and
2011 end, the
underlying fund has allocation of more than 56% in companies
US, Switzerland, Brazil and Canada. India
does not figure in the top 10 countries.
Monsanto, Archer Daniel
Midland, Viterra and Bunge are the top five companies that this fund
invested into with these five companies accounting for 28.5% of the
Monsanto is a seed producer, Syngenta is a herbicide / an
Archer Daniel Midland, Bunge and Viterra are food grain procurers,
consider investing in
this fund considering two perspectives; ‘theme based
diversification’ and ‘geographical
2: Performance of DWS
fund along with SENSEX and
The fund is based
which is unique
in India with none of the domestic funds offering a similar theme.
Additionally, the agriculture theme is expected to do well on a global
the future considering the increasing problems in living conditions.
current increase in food prices will increase the cash flows of
the agriculture space and ultimately, increase in profits. This would
the investors investing in this fund and the agricultural space.
In terms of
diversification, the fund is investing into companies related to
the world. Since, India does not figure out in the top 10 countries,
investor in this fund will also accrue diversification benefits. This
in the level of correlation between the daily fund returns and that of
The fund’s daily returns have 25.7% correlation with the
SENSEX’s daily returns
whereas domestic equity fund has a higher degree of correlation with