With the world population slated to increase, particularly from the emerging markets like India and China, coupled with the increase in per capita income in the developing nations and an improvement in lifestyle, the demand for food, and in turn agricultural commodities, will see an upward rise. Moreover, with rising income, meat consumption is also expected to increase and therefore more grains, wheat and other soft commodities are needed to feed the poultry demand, thus also creating demand for agricultural commodities.
However, despite the expected increase in demand, supply factors remain constrained due to land and water scarcity caused by urbanisation. Climate has also proven to be very unpredictable in the recent past, with increasing frequency of extreme weather events. This makes the planning and production of crops harder, especially when the supply of agricultural commodities is concentrated in a few countries.
This mismatch in demand and supply factors is expected to move prices of agricultural commodities upwards. OSK-UOB has therefore established this Fund so as to capitalise on this potential price increase in the agricultural commodities sector.
The Cultivating Fund
The OSK-UOB Agriculture Fund (AGRI) is an open-ended, growth fund which aims to achieve long term (5-7 years) capital appreciation through an over-the-counter derivative instrument in the form of a swap agreement that is linked to the agricultural commodities sector.
The Fund seeks to achieve its investment objective by investing up to 100% of its Net Asset Value into fixed income instruments and up to 10% of its Net Asset Value as capital payment for exposure to an over-the-counter (OTC) derivative instrument in the form of a swap agreement with a counterparty that offers exposure to the performance of one of 3 indices, the Contag Beta Agriculture Excess Return Index-Beta Index, the Contag Beta Agriculture Excess Return Index-Alpha Index and the Contag Beta Agriculture Excess Return Index-Alpha Beta Index ("Contag Indices") that are linked to the agricultural commodities sector.
More on Contag Indices
The Contag Indices provide exposure to agricultural commodities by referencing exposure to certain commodity futures over time. They use the Contag contract selection methodology to select a maturity for each commodity futures on a monthly basis. Each of the Contag Indices invests in the same underlying commodities as included in the S&P GSCI™ Agriculture Official Close Index Excess Return (the “GSCI”) which currently as at 11 June 2011, by way of example, comprise exposure to the following underlying commodities but which may change in accordance with the GSCI’s own rules: sugar, cocoa, coffee, corn, cotton, Kansas wheat, soybeans and wheat. The workings of the Contag Indices are elaborated further in the Prospectus (page 18-20).
AGRI is suitable for investors who:
seek investment opportunities in the agricultural commodities sector;
seek capital growth;
have a long term investment horizon; and
have an appetite for risk to gain higher returns.
Source: OSK-UOB Investment Management