Sprott Asset Management, the US-based fund management firm, has launched a new open-ended real assets fund of funds to include exposure to publicly-listed agriculture and timber assets as well as listed infrastructure.
Sprott joins a growing universe of mutual fund distributors offering listed exposure to agri; BlackRock has the BGF World Agriculture Fund that is currently on $180 million and the recently-renamed Sarasin Food and Agricultural Opportunities Fund — previously it was known as Sarasin AgriSar Fund — is now in its sixth year.
The fund, named Sprott Real Asset Class, will launch with C$5 million ($4.7 million; €3.4 million) already under management after getting interest from several existing clients. The fund will target family offices and institutional investors, according to Michael Underhill, chief investment officer of Capital Innovations, the real assets manager and sub-advisor to the fund.
“Sprott saw the need for a diversified real asset solution that could provide income, inflation protection and diversification to their current portfolio offerings as more investors are seeking to emulate the endowment style of investing – this solution fit the bill perfectly,” he told Agri Investor in an email.
The split between agriculture, timber and infrastructure will change depending on market volatility and “Capital Innovations’ view of the world”, said Underhill.
“This allows the fund to navigate a world where yields fluctuate rapidly and with great magnitude,” he said. “For example, in times of muted volatility, the fund will increase its exposure to higher risk assets, but as volatility rises, warranting caution, the fund will instead increase its exposure to more conservative investments. In all cases, the fund will remain diversified among equities focused on infrastructure, timber and agribusiness themes in order to balance risk, return and income.”
The listed agriculture equity market is quite large representing a $1.1 trillion market capitalization and 1,100 companies across 81 countries, according to Underhill. And the global listed timber market also represents around $1 trillion of market value, offering diverse investment opportunities for the fund.
“This investment breadth and depth makes agribusiness companies a potentially good fit for a diversified portfolio, which is typically weighted towards financials, industrials, healthcare and technology,” said Underhill.
The agriculture sector’s diversification across production, processing, transporting, meat, grain, fish and forestry, also lessens its wider volatility, continued Underhill.
“Agricultural equities are not simplistic ‘directional’ investments,” he said. “Rather, they provide relatively uncorrelated returns to underlying soft commodity prices captured by investing across the agricultural value chain. This diversification helps to dampen overall agricultural equities’ return volatility.”
The fund will commit to existing mutual funds but will also make some direct investments into these sectors through stocks, REITS, and master limited partnerships.