International mutual funds have been on a roll. Seven of the top-10 equity funds in the past year have been international funds. "We have been recommending international funds for diversification purposes," says Suresh Sadagopan, a certified financial planner who runs Ladder 7 Financial Advisories. There are several compelling reasons why you should take a close look at them.
FOOD PRICES TO GO UP
Politicians would like us to believe the rise in food prices is a temporary phenomenon. But, that need not be the case. As environmentalist and author Lester R Brown Brown says: "As a country industrialises and modernises, cropland is used for industrial and residential development and takes valuable land away from agriculture... as rapid industrialisation pulls labour out of the countryside, it often leads to less doublecropping, a practice that depends on quickly harvesting one grain crop once it's ripe and immediately preparing the seedbed for the next crops."
This scenario is already playing out in China, the world's largest producer of rice and wheat, and that is likely to be the case in India (world's secondlargest producer of rice, wheat) and other countries, pushing up global food prices. Politicians have a role to play in deciding the food prices. Take the case of Thailand, where incoming prime minister Yingluck Shinawatra won the election by promising to pay rice farmers a minimum of 15,000 baht per tonne, against the current price of 9,000 baht per tonne. Thailand is the largest exporter of rice in the world and accounts for nearly 30% of the world trade. The export price of Thai rice is the de facto price at which rice is sold internationally.
This move, if implemented, as it is likely to be, will push up rice prices worldwide. "It means that the export price of Thai white rice will spike up by 60%... to at least $800 per tonne," analysts Billy Wang and Zuo Li of IIFL institutional equities wrote in a recent report. So how do you benefit from this trend of rising food prices? The opportunities available in the Indian market are fairly limited. But you can look to exploit the opportunity by investing in funds like the DWS Global Agribusiness Offshore Fund and Birla Sun Life Commodity Equities -Global Agri Ret Fund. As Satyajit Das, the author of the upcoming Extreme Money: The Masters of the Universe and the Cult of Risk, puts it: "I said in 2008 that food and energy were probably attractive investments - people have to eat. My views haven't changed."
ABUNDANT COMMODITIES NO MORE
Hydrocarbons have largely driven the industrial revolution over the last two centuries. Petroleum is a liquid form of carbon, whereas natural gas is a gaseous form. Coal, which is an impure form of carbon, has been used to generate massive amounts of power used by industries. As Jeremy Grantham, chief investment strategist at GMO, an asset management company and one of the most respected fund managers in the world, writes in Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever: "For a small window of time, about 250 years, from 1800 to, say, 2050, hydrocarbons partially removed the barriers to rapid population growth, wealth, and scientific progress." In fact, courtesy the industrial revolution, more ores and industrial commodities were found and dug up. This, in turn, led to stable commodity prices.
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