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Liontrust to tap into food and water shortages with new fund

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Written by: Adam Lewis
22/01/2016
Liontrust is to launch a fund investing in agriculture and water next week given what it says are huge changes in supply and demand in the two sectors.

According to the fund management group rapid urbanisation, industrialisation and rising living standards in emerging markets has lifted the demand for both food and water. Also, at the same time, it says historic underinvestment and climate change has exacerbated shortages in supply globally, of which it says huge investment in infrastructure and technology is needed to resolve the imbalances.

Given this backdrop, and the opportunities it presents for active investment, next week it is launching the Liontrust GF Water and Agriculture fund, which will be managed by Hugo Rogers and Kristof Bulkai who joined the group from Thames River Capital last year.

To illustrate these current imbalances Rogers says while China has 20% of the world’s population it has just 7% of its fresh water resources, which he describes as a “massive and unsustainable mismatch”.

He says: “Around the world, 7.3 billion people still have to eat and drink as priority number one, so the case for the agriculture and world sectors remains compelling, despite recent volatility in the global growth outlook.

“Our argument is not that you should store tins of food and bottled water, preparing for the apocalypse, but that until demand/growth moderates, significant investment in supply is going to be required.”

For example Rogers says it is going to take at least a 2% compound annual growth rates in agricultural productivity and a 3% increase in water supplies every year for the next 15-20 years just to keep up.

So what will the fund be investing in? Rogers says in practical terms there is potential for investment in new seed technologies, railroads inland in Latin America, port expansions in export regions, refrigerated logistics, storage, education, farm consolidation, desalination and upgraded infrastructure.

“Tailwinds for these sectors can be as volatile as the weather and after a three-year bear market for commodities many investors are cautious, despite the supply/demand story,” he says. “However we believe there are extensive opportunities available across water and agriculture along the value chains, from field to fork and source to sewer.

“On the water side, these include infrastructure, technology, equipment, engineering and construction, services and owner of water and water rights. In agriculture, there are opportunities in land equipment, consumables, technology, service providers, trading companies and downstream processes.”

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