Best Energy & Commodity Hedge Fund: Shortlisted

BlackRock launched its Agriculture Fund in October 2007 as a major thematic play on the long-term cyclical upswing in the agriculture sector.

The fund, originally managed by the group's resources manager Graham Birch and now headed by lead members of the natural resources team Richard Davis and Desmond Cheung, is structured to maximise flexibility and invests across the spectrum of agriculture related assets, from soft commodity futures to equities and agricultural real estate.

From launch the fund has aimed to take advantage of an upswing in agriculture, as the sector entered a perceived supercycle. The philosophy is that ongoing demographic shifts, industrialisation and competing land-use claims for biofuels are now driving a momentum that will see agricultural assets and the firms supplying the sector benefit from the uplift.

The flexibility of the fund allows the management team to invest in a variety of vehicles and brings together a disparate sector of agriculture-related products across global markets. Currently equities make up the bulk of the fund's investments, but it also has investment in agricultural land and soft commodity futures.

"When we launched the fund we saw it was an underinvested sector which was set to become increasingly important in a world where the demographics, notably the continuing population growth, and the competing demands for land use, were going to be significant factors," says Doug Shaw, managing director of BlackRock Proprietary Alpha Strategies.

"These Malthusian population problems are only going to be resolved through the use of technology and so having a large degree of freedom and flexibility as to where we invest gives us more chances to do a good job for our clients," Shaw says.

Alongside land and farming stocks, the fund invest in a range of stocks from agricultural science companies to fertiliser firms.

The natural resources investment team manages portfolios including the BGF World Mining, Gold & General Fund and the Natural Resources Hedge Fund and in over 20 years of experience has established a proven successful track record in the natural resources sector.

As key members of the investment team, providing investment ideas, portfolio allocation decisions and support to the fund, Davis and Cheung were the natural choices to run the fund when Graham Birch decided to take a sabbatical in March 2009, says Shaw.

"The stock selection skills of the managers have allowed them to generate consistent positive performance in their natural resources funds even during periods of volatile and down markets," he says.

One reason for this, he says, is the scale of the operation that BlackRock can bring to the investment process and "our market dominance in the natural resources sector".

This is not just in the internal resources available to managers and analysts but, notably, "the outstanding access to company management" which BlackRock's size and influence in the market delivers.

Also critical, Shaw adds, is the sophisticated framework of risk management, run as an independent entity and reporting to the highest levels in the company.

Fund facts: BlackRock Agriculture Fund

Full name of fund: BlackRock Agriculture Fund
Name of portfolio managers: Richard Davis and Desmond Cheung
Name of investment/management company: BlackRock
Contact information: Alex Orr, 33 King William Street, London, EC4R 9AS (+44 (0)7743 235849; alexander.orr@blackrock.com)
Launch date: October 1, 2007
Assets under management: $174 million (at March 31, 2010)
Net cumulative performance since inception: -6.35% (at March 31, 2010)
Annualised return: -2.59% (at March 31, 2010)
Annualised volatility: 23.96%
Sharpe ratio: n/a
Strategy: commodity
Share classes: US dollar, euro, sterling
Administrator: Brown Brothers Harriman (Luxembourg)
Auditor: PricewaterhouseCoopers
Custodian: UBS
Prime broker: UBS
Domicile: Luxembourg
Management fee: 1.25%
Performance fee: 12.5% (above hurdle)
Minimum investment: $1 million
Redemption/liquidity terms: monthly (90 calendar days' notice)