Mutual Funds

Birla Sun Life Commodity Equities Fund: Invest

Aarati Krishnan | Updated on August 04, 2012

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High global crop prices and developing El Nino conditions globally suggest that this may be a good time for investors to bet on agriculture stocks.



With severe drought conditions in key producing nations such as the US and India, global food prices look to be on an upward trajectory.

The unexpected shortfalls in US corn and soyabean output have already pushed up prices of these feed ingredients by 30-40 per cent so far this year. This trend, with a lag, is likely to lead to an increase in prices of food crops too.

This, coupled with developing El Nino conditions globally, suggests that this may be a good time for investors to bet on agriculture stocks.

The S&P Global Agribusiness Index, after peaking in April 2011, fell 24 per cent by September 2011. It has since charted a recovery, rebounding from its lows. The index, however, is 13 per cent below its early 2011 levels.

High global crop prices suggest that agri-input makers can look forward to strong demand conditions in the year ahead.

An investor wishing to buy a portfolio of agriculture stocks in India would be constrained by the lack of a fund playing on this theme in domestic markets.

Birla Sun Life (BSL) Commodity Equities Fund - Agri Plan is a fund that invests directly in stocks of global giants in the agriculture business.

Investors can buy units of this fund, as a diversification bid. Exposures should be limited to a small portion of the portfolio as agri commodity stocks can be quite volatile in nature.

BSL Commodity Equities - Global Agri Plan has a mandate of parking the major portion of its portfolio (over 65 per cent) in overseas equities with the flexibility to invest up to 35 per cent of its assets either in foreign equity funds or Indian stocks and debt instruments.

Analysis of its portfolio suggest that the fund has invested a lion’s share of its portfolio in foreign equities with the top holdings made up of companies in fertilisers, agrochemicals, biotech, farm equipment and similar agri inputs.

The fund’s portfolio as of end-June 2012 featured a mix of stocks of fertiliser makers such as Agrium, Mosaic Co, agrochemical major FMC and agri-business companies such as Bunge.

Performance

Launched during the market lows of October 2008, the fund has delivered a 15 per cent compounded annual return since its inception.

That is behind returns of 20 per cent managed by the S&P Global Agribusiness Index, the fund’s benchmark. But returns have picked up sharply in the past year.

On a year to date basis, the fund’s NAV has surged 11 per cent against the 4 per cent gain on the benchmark.

Given that this is a fund investing in global stocks, Birla Sun Life Commodity Equities Fund benefits from a depreciating rupee.

The downside to the rupee may be limited from hereon. However, the fund’s performance may receive support from the performance of underlying agribusiness stocks.

The fall witnessed by some of the stocks such as Bunge and Mosaic has brought their valuations below their average price-earnings ratio of the last one year.

This provides scope for appreciation.



Published on August 04, 2012

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