SAF diversification delivers consistent and competitive returns

Originally posted January 23, 2017

The Sustainable Agriculture Fund (SAF) has delivered a strong half-year net profit of $3.7 million to the period ending 31 December 2016. While the Fund’s performance is as strong as last year’s half-year result ($4.9 million), the longer growing season extended the winter crop harvest into January meaning some of this profit will be recognised in the second half. agCap anticipates SAF’s full-year results will be as good, if not better, than the previous year. This is reflected in SAF achieving a one-year total return of 12.7% before fees and 10.6% after fees for the year ending 31 December 2016.

Martin Newnham, Chief Executive Officer of agCap explains: “Following a $10 million distribution to investors in September 2016, SAF has quickly restored its cash position, highlighting the strong cash generation characteristics of a diversified broadacre portfolio. With a high proportion of land, low depreciation and capital expenditure requirements, high payout ratios are an additional benefit to the low-risk capital apprecation of the land.”

At June 2017, SAF will have completed its 7th full financial year of operations and its 6th year since it has been fully invested. In this time, the Fund has been on a journey and has steadily increased its year-on-year performance and is now delivering consistent returns to investors.

Martin Newnham continues: “Our investors are now being rewarded with SAF being in the top 25% of returns for all Australian broadacre farms over the past three years and with our half-year result we expect to again be in the top 25% for a fourth year in 2017. This is a testament to our highly capable and experienced team and systems that we have implemented. Disciplined asset acquisition delivered a good result early in the fund’s life and we now anticipate SAF to have been in the top 25% in five out of the seven years it has been fully invested. agCap’s 2-year and 3-year compound average return before fees of 10.3% and 7.7% reflects this consistency.

A key factor in SAF being in the top 25% is the diversification of the SAF portfolio. This enables SAF to more closely track the performance against the broader Australian benchmark, while also adding value to the portfolio through the benefits of institutional management.

Deo de Jesus, General Manager, Strategy explains: “The SAF portfolio has been specifically designed to provide the same risk exposure as Australian broadacre benchmark published by ABARES. This benchmark has over 30 years’ of history delivering returns that are comparable to other asset classes.”

“This is not surprising as we would expect in a competitive investment environment for arbitrage to narrow any gaps. In addition, what Australian broadacre agriculture provides is an asset class that behaves differently to other asset classes. This is valuable and is something that our investors have been enjoying.”

“This diversified agriculture portfolio has taken some time to build and develop, coupled with an investment and operating strategy that has been specifically designed to meet the needs of the portfolio. This will be difficult to replicate and represents significant value to investors.”