The day 130/30 bought the farm

Asset Allocation 03 Oct 2007

It was only a couple of days ago that 130/30 lost its innocence with the announcement by Credit Suisse of a 130/30 index fund.  But today 130/30 bought the farm – or at least the agribusiness sector.

Global Cap, a hedge fund start-up located in Zurich (Europe’s breadbasket?) announced today that it will invest in publicly-traded agricultural names around the world.  And as if that weren’t hot enough, they’ll doing it using a 130/30 strategy.  (If the name Global Cap rings a bell to European and Asian CNBC viewers, its because these guys do a regular shtick in front of that oddly uninspiring Zurich SMI backdrop.)

Global Cap fund manager Alexis Dawance says:

“With China getting wealthier, we are seeing soft commodity prices increasing and more investment worldwide into agriculture in general. And with water shortage and worldwide urbanisation destroying arable land, we need to have better yields on existing fields; and so we will invest in companies that produce fertiliser, tractors, plantations and farms. It’s also a good hedge against inflation.

Of course, using a 130/30 strategy means Dawance is going to have to short some names too.  So he can’t afford to get too bullish on the sector.

But he had better get rolling soon.  Food prices have already begun to spike in both the developed and developing worlds.  Food prices are a key driver behind inflation in China and some experts say that prices aren’t coming down anytime soon since higher food prices also achieve policy objectives by transferring wealth from the urban economic engines of the country to the poorer rural areas.

Even in North America, home of the 99 cent Whopper, costs are starting to take off – as anyone who has had milk with their Coco Pops recently is aware.  (In fact, the OECD recently accused the US of punishing milk consumers…”Got Tariffs?”)

Farmland itself has been caught up in the “milk bubble” according to data from USA Today (left).

So you had to know that it wouldn’t be long before some smart Swiss guy would combine two of today’s most popular ingredients into one nutritious fund.  But the question is: Is 130/30 becoming and overused marketing term?

(Oh, and the “loss of innocence” of 130/30 through the creation of a 130/30 index?  More on that product later.)

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