The growing number of investors looking to use agribusiness products should approach this asset class like any other and diversify to mitigate risk, according to a number of sector experts.
Speaking at the Tribeca Tax Planning Strategies Conference, agribusiness provider Tom May highlighted several approaches investors could take to incorporate diversification into their investments.
One is to include different types of agribusiness products in their portfolios that offer completely different revenue streams. May, who is WA Blue Gum and Mediterranean Olives Estate managing director, said contrasting forestry investments with horticultural products is a good illustration of this concept.
“Forestry typically is what you’d call a lump sum return, that is you get your money at the end of the project. Horticulture, growing fruit of all sorts, typically takes about four years to produce returns and then you get an annual return forever after, as long as the project runs,” May explained.
Another factor that can be used for diversification is geography. Lonsec manager, marketing and distribution, Steve Newnham said the devastating effect of Cyclone Larry in Queensland emphasises this point.
“An email from a forestry group the other night informing me that Cyclone Larry had passed between two of their regions, where they were growing teak and mahogany, highlighted the need to consider the whole issue of regional diversification to make sure you don’t suffer from any natural disasters that arise from time to time,” he said.
A further area May felt diversification could be achieved was investing in different products run by different managers. Similar to other investment classes, investors now have several agribusiness managers to choose between, ranging from larger listed managers to smaller boutique type managers.
“It’s a bit like in equities. You might say ‘I want to be in banking’ or ‘I want to be in resources’, but you may not necessarily put all the eggs in the one bank or all the eggs in the one resource company,” he said.
In the past five years, funds under management in the agribusiness sector have grown by as much as 80 per cent.
Last year, inflows into the sector topped $1 billion.
