Specialist expertise at Sarasin AgriSar

Most pundits, even those sceptical about the claims over climate change, are sold on the notion that the world's food production is struggling to keep pace with demand. The rise of per-capita income in Asia is often cited as one of the main trends driving demand, but protein deficits were on the rise in western economies long before the Chinese developed a taste for burgers. The increasing amounts of agricultural land being used to produce biofuels is also exacerbating the situation. Put simply: the gradual erosion of surplus stocks, even for staples such as rice, wheat and soyabeans, has rendered food markets ever more vulnerable to supply-side shocks.

This is the stark reason why the agricultural sector is now attracting increased attention from investors. Henry Boucher, manager of the Sarasin AgriSar Fund, believes these factors are opening up tremendous opportunities and the AgriSar Fund aims to take advantage of them.

The United Nations food agency estimates that emerging economies alone will need to invest an extra $83bn (£52.5bn) annually over the next 40 years in order to secure food supplies. This could translate into increased expenditure at every stage of the food-production process and, as food prices rise and the industry becomes more profitable, there should be greater scope for investment in agriculture's ancillary industries.

Mr Boucher hopes to take advantage of this by investing "from field to fork", as he puts it. He is wary of over-exposure to any one market segment, so the fund's investments are diversified through a broad range of agricultural industries, from biotechnology and seed propagation, to fertiliser and pest control.

In constructing the portfolio, Mr Boucher's approach is first to identify the underlying trends that drive long-term investment returns - he cites the"monetisation of water" as a prime example. Second, he identifies those companies most likely to benefit from the trends, before assessing whether they meet a specific investment criteria, which include tests on cost controls, strategic assets, intellectual property and balance-sheet strength.

The AgriSar Fund, which is an open-ended investment company, offers broad exposure to the agricultural sector at a single stroke. But the nature of the sector dictates that it isn't suitable for investors who can't stomach price volatility; the emphasis is squarely on returns over the long haul. Investors need also be aware that the ability of emerging economies to meet the projected increase in agricultural budgets could be compromised by increased protectionism, or a significant fall in development funds from developed countries struggling with their budget deficits.

Mr Boucher makes the point that his investments are derived from "a network of complex industries with volatile inputs and prices that can be hard to analyse". However, Sarasin & Partners claims to be good at picking global themes for its funds and the AgriSar manager has direct access to the Food and Agribusiness Research team at Rabobank, Sarasin's parent company and the world's leading bank focused on the agricultural sector. The fund levies an annual management charge of 1.5 per cent, plus a performance fee of 15 per cent on returns above the MSCI World Index in dollars. Last year the AgriSar Fund beat its benchmark by 6.3 per cent. On the basis of its long-term potential, the fund's accumulation units are a buy.

Key fund data:

Source: Sarasin & *FT Funds

Notes: Performance figures as at 28 January 2010

Top 10 holdings as at 31 December 2009

Asset Allocation