He adds: “We considered that this was likely to lead to increased chicken demand and prices and this proved to be correct.”
On the flip side Mr Govan highlights paper firm Domtar, which performed poorly as the earnings momentum was weaker than both he and the market had anticipated. He says: “Around 10 per cent of North American paper capacity was cut last year and this resulted in very high industry utilisation and enabled the paper companies in North America to push through a price increase, which was successful.” But an attempt to drive a second price hike proved less successful, as customers increased imports.
In terms of what lies ahead, the manager is positive on his outlook, particularly where a number of the subsectors are making supernormal profits in the lower crop price environment. Even at these prices, the farmer is incentivised to maximise production and as such Mr Govan does not expect much change in fertiliser or seed demand.
EXPERT VIEW
Ben Willis, head of research, Whitechurch Securities
The Baring fund only invests in companies whose majority earnings are from soft commodities. Therefore, it may be considered a ‘purer’ play on the theme compared with some of its peers. The manager adopts a multi-cap approach, employing a value bias and hoping to harvest the rewards from stocks being overlooked by the broader market. One for investors to consider if they are looking for a specific focus on this investment theme.
