'Paradigm Shift' in Commodity Prices
By Louise Fallon, Worldwise Investor
3 July 2011 | Thematic News | Comments (0)
Grantham in his April letter says: “no compound growth is sustainable” and argues that we are reaching the point where limited resources will put a strain on consumption. His previous letter showed that commodities with constantly falling trend prices over the previous century are now rising in price so distantly from trend that he pronounces it a “paradigm shift”. He begins this quarter’s letter with the assurance that the human race is capable of solving these scarcity issues, but that action needs to be taken and: “It really is a crisis that begs for longer-term planning– longer than the typical horizons of corporate earnings or politicians.” As a result of this he criticises capitalism for its short-sightedness and inability to efficiently handle scarcity.
As mentioned in his previous letter, the pressure on hydrocarbons will be strong as we come to the end of our oil, natural gas and coal reserves. The letter suggests that in the 50 years that this may take, there is room for innovation in renewable and clean energy. The capitalist system of price signals should encourage this technology, and could be effective in solving the energy problem. In a similar way he foresees metal prices rising to respond to finite supply. His predictions concerning energy give long term prospects for clean energy funds, and for investment into energy efficiency.
With agriculture, however, without a careful plan he predicts we may “run head down and at a considerable speed into a brick wall” as our population and consumption is rapidly rising while crop yields are slowing in growth. Upward pressure on crop prices may occur as a result of rising population and increasing consumption, particularly of meat. Grantham’s letter repeats Jim Rogers’ advice: “become a farmer”, to take advantage of these higher prices. Agriculture funds are likely to benefit from increasing crop prices and many invest in fertiliser companies so will further benefit from rises in the price of fertiliser. As a solution to the agriculture problem, Grantham supports the method of no-till farming, where farmland is left unploughed. This method helps water retention, can lower fertiliser use, and can make the land a store of CO2.
Although the letter illustrates the problems the world is facing, it remains optimistic in our ability to solve them if action is taken now. The predictions from this letter would suggest strong performance for agriculture and clean energy funds in the long term.
Fund context:Most of the Worldwise Investor Agriculture funds, such as Sarasin AgriSar, have holdings in fertilizer companies such as PotashCorp, Yara International and Agrium Inc. Companies that focus on agricultural efficiency such as Syngenta and Monsanto are also held by funds in these themes, such as CF Eclectica Agriculture and Baring Global Agriculture. Some Environmental funds and Multi-Themed funds have agriculture as one of their investment themes, such as Schroders Global Climate Change and Pictet Environmental Megatrend.
There are funds that try to reduce exposure to carbon risks, such as IFSL Carbon Footprint, and also funds that invest in alternative methods of power generation, such as iShares S&P Global Clean Energy, and others in the Clean Energy theme.
Baring Global Agriculture
CF Eclectica Agriculture
IFSL Carbon Footprint UK350 Equity Index Tracker
iShares S&P Global Clean Energy
Pictet Environmental Megatrend Selection
Schroder Global Climate Change
Get investment advice
Speak to a specialist adviser for help in choosing the right green or ethical investment.
or call 020 7812 1460
Louise Fallon starting working for Worldwise Investor as an intern over the summer and has written a number of articles during that time.
Louise is studying for a degree in Mathematics and Economics BSc at London School of Economics and Political Science, and graduates next summer.
News keyword search
News by category
News by month
News by author
And so now the FSA are looking to ban UCIS for retail investors. See The soft closure of the two First State Funds does not mean they are completely closed to new... The Multi-Asset approach seems to be a sensibel approach. Our view is that multi-asset investing is a very different discipline to long-only equity (which is... Has the same sort of definition slipping also happened to Jupiter Ecology? I hope not.
There looks to be quite a...
The soft closure of the two First State Funds does not mean they are completely closed to new...
The Multi-Asset approach seems to be a sensibel approach.
Our view is that multi-asset investing is a very different discipline to long-only equity (which is...
Has the same sort of definition slipping also happened to Jupiter Ecology? I hope not.
The value of ethical and green investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks of investing. Our aim is to provide you with the best information we can to help you make decisions about ethical and green investments. It is not to advise you on the suitability of an investment to your personal circumstances. Nothing written on the site should be considered personal advice, nor do Holden & Partners accept liability for any inaccurate information on the site. If you are unsure about the suitability of an ethical and green investment please contact Holden & Partners or your financial adviser.