What are the really important long-term trends in the markets? The rise in power and influence of emerging markets such as China and India is the obvious one, but is there a different way of playing this story?
A possible answer is the agricultural sector. If you include equipment, processing, retail and inputs such as fertiliser, the whole "field to fork" chain accounts for over 10 per cent of global GDP. I think you would struggle to find another sector that counted for so much. Furthermore, demand is set to remain strong as the global population expands. The world headcount is due to hit seven billion people by the beginning of 2012, up from five billion in 1990 and three billion in 1960. This in itself is putting huge pressure on agricultural resources as only a very limited amount of land is being added to production each year.
Added to this is the important influence of diet change. As emerging markets continue to develop, their populations are becoming wealthier and appetites for different foods emerge. Part of this is down to affordability and part practicality. In the UK the number of households with a fridge is close to 100 per cent, whereas in China it is 61.9 per cent and in India it is only 18.5 per cent. In Africa it is far lower still. Those with refrigeration on hand are likely to eat more meat and dairy produce, so this is the next step on the road to higher consumption.
Quite simply a westernised diet is agriculturally far more intensive. Staple grains that formerly fed people have to stretch further to feed animals, and in recent years another important area of demand has materialised. It will soon be law in the United States for 15 per cent of every litre of petrol to be ethanol from biofuels, and an increasing amount of agricultural land is being given over to their production.
Given these multi-year (or perhaps even multi-decade) trends, the need for greater agricultural efficiency is a pressing one. There is only so much useful land available and better fertilisers, crop protection, equipment and irrigation are all important to increase productivity. So rather than buying a farm or speculating with soft commodity-based ETFs, a practical, long-term way to benefit is through an agriculture fund such as Sarasin AgriSar managed by Henry Boucher. Unlike some funds that focus on specific parts of the agriculture chain, Mr Boucher can invest in companies operating all along it, literally from "field to fork", or, in other words, from producer to consumer.
According to Mr Boucher, at different points of the economic cycle different parts of the chain will be the most interesting and attractive. For example, he currently thinks biofuels are a potential risk to some areas. This might sound strange when you consider the corn price has doubled over the last 12 months and is experiencing low stock levels and high demand. However, a lot of the recent price movements have been driven by increased need for biofuel and Mr Boucher's worry is that substitutes can be used and the recent price surge is overdone.
Presently, a significant focus of the fund is on food consumption trends in emerging markets. This is leading to a number of stock ideas in food manufacturers and retailers, ranging from Want Want, a Chinese food business dominant in rice crackers and flavoured milk, to Tat Konserve, a processor of tomatoes and peppers based in Turkey. The company exports to 73 countries supplying fast food chains such as Pizza Hut, McDonald's and Burger King.
Clearly this is an exciting long-term trend as population growth and diet change in the developing world clearly have much further to run. For instance, in the very long-term Mr Boucher believes Africa offers significant potential, though there are currently few ways of playing this market. Although it can be a volatile area I believe this fund stands out as an excellent opportunity to add a key long-term growth theme to your portfolio.
Ben Yearsley is investment manager at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independentReuse content