DWS Global Agribusiness

DWS Global Agribusiness is theme-based globally and intends to invest from agricultural commodities to consumer products ....

YT Kum, CFA 06.11.2007
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Investment Strategy
DWS Global Agribusiness is theme-based globally and intends to invest from agricultural commodities to consumer products. The Fund aims at helping investors to capture value at various points along the food chain, under the backdrop of rising prices for agriculture and food related products.

According to the Fund's investment policy, it has to invest at least 70 percent of assets in companies operating in or profiting from the agricultural industry, including cultivation, harvesting, planning, production, processing, service and distribution of agricultural products. In other word, the Fund can invest up to 30 percent in non-agribusiness related companies.

The Fund basic

ally applies bottom-up stock selection approach with particular focuses on companies' market position, balance sheet ratios, management quality and corporate governance. After the Fund's screening procedure, around 60 to 70 stocks are distilled into the final watch list for portfolio construction.

Portfolio Analysis
According to DWS, agribusiness is defined as anywhere along the food supply chain, which broadly includes facilitators, value adders, collectors and distributors. This definition offers the Fund with a larger flexibility in stock-picking, as logistics, banks and marketing, which have no direct linkage with agricultural products, are also included in the food chain. Broader definition means higher flexibility, but may blur the investment theme.

However, the Fund's September portfolio shows that the flexibility is not abused. Based on the Fund's sub-industry breakdown, we regard "diversified commercial & professional services", "marine ports & services", "oil & gas refining & marketing", "water utilities", "diversified banks" and "marine" as industries with looser ties with agribusiness products; and stocks in all these industries accounted for around 9.93 percent of the Fund's asset, proving that the Fund's themed strategy.

Although the food chain is broad and diversified, according to the Fund's definition, the Fund demonstrates a strong preference to agricultural products (27.71 percent), packaged foods & meats (19.55 percent) and fertilizers & agricultural chemicals (17.00 percent). These sectors are quite inelastic by nature, implying that the Fund's performance may be comparatively stable throughout the ups and downs in business cycles.

Agribusiness is not a large-cap world, giving the Fund a good reason to be mid-cap focused. As of June end, mid-cap stocks accounted for 45.5 percent of the portfolio's asset, while large-cap stocks accounted for 26.1 percent. Mid-cap focused is not a surprise, but the number of holdings is. With around 90 stocks in the portfolio, the fund is quite diversified, given a fund size of USD 895.21mn as of September end.

As the Fund is a "bottom-up" booster, country allocation should not be a great concern. However, due to the themed business nature, the Fund gives investors some exposures to several emerging markets like Brazil (7.88 percent), Norway (6.38 percent), Denmark (4.54 percent) and Israel (3.38 percent) as of September-end. On the risk front, emerging market exposure should not worry investors if the Fund is managed in a diversified manner. In addition, even those holdings are distributed among several emerging markets.

The Fund registered an eye-catching 32.59 percent year-to-date return as of 31st October 2007, which is quite persuasive so far, but it needs time to prove the Agribusiness theme has a nice prospect and it can bask in that.

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About Author

YT Kum, CFA  YT Kum is a consultant for Morningstar, contributing to manager selection and asset allocation activities in Asia, and is responsible for providing investment thought leadership on topics relevent to investors in Asia.  

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