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Active Retirees : Active Retirees Dec-Jan 2013
38 | www.probussouthpacific.org FINANCE WAYS TO INVEST BUY A FARM Buying a viable farm requires millions of dollars and ongoing management, which may not be favoured by retirees. BUYING ACTUAL COMMODITIES This provides the most pure exposure to the 'spot' price of agricultural commodities, but is not feasible for the average retiree given the costs and difficulties of storing commodities. SHARES There is a range of agricultural stocks listed on the ASX, including AACo (beef), GrainCorp (grain), PrimeAg (cropping and livestock), rural services (Elders and Ruralco), Nufarm (chemicals) and Incitec Pivot (fertilisers), Warrnambool Cheese and Bega (dairy). Stocks are liquid but many are cyclical and driven by company-specific factors such as debt. There are limited choices on the ASX. DERIVATIVES Investors can access grain (wheat, barley, sorghum and canola) futures and options on the ASX; there are also CFDs that allow investors to trade cotton or corn. Derivatives allow potentially higher returns through use of leverage, but they require active management, are complex and can require high investment. UNLISTED MANAGED FUNDS Unlisted managed funds can provide direct exposure. There are a number of unlisted managed funds that directly hold agricultural assets. The RFM StockBank fund, for example, fattens and sells sheep and cattle. But the minimum investment is $25,000 and it is relatively illiquid compared to the likes of shares: it takes three to six months to get money out. ETFS BetaShare's Agriculture ETF requires very little ongoing work. The ETF is listed on the ASX, so it is easy to buy and sell. It tracks a basket of agricultural commodity futures, which helps mitigate the risk of individual commodity volatility. The ETF has no minimum investment and investors are only exposed to losing the initial amount spent. Having said this, the risk and volatility is similar to any other agriculture security. sugar. It trades like a share, so is liquid, and it doesn't require large sums as there is no minimum investment. The ETF, which listed in November last year, has already performed strongly. It has gained 34 per cent, helped by the worst drought in 50 years in the US, which has pushed up the price of corn, soybeans, wheat and sugar. While the Agriculture ETF does makes it a lot easier for the average retiree to buy commodities, it won't deliver income. "It is essentially a way to speculate on commodity prices," Higgins says. It is also volatile. Commodity prices can surge or crash in a short period due to factors such as extreme weather. That makes it a bumpy ride, and means that it may not be suitable for retirees looking for investments that provide reliable returns or income. Higgins says a retiree with a large portfolio invested in low-risk assets, and who has a high risk tolerance, may choose to speculate on commodities, though exposure should be no more than fve per cent of their portfolio. Some retirees may choose to ride that volatility in the hope of profting from the next boom, and offsetting that more expensive loaf of bread they may face in the future. But they need to be ready for a wild ride. "It's going to be a very volatile sector,” Higgins says. •• ! Commodity prices can surge or crash in a short period due to factors such as extreme weather and drought. Some may choose to ride that volatility in the hope of profiting, but they need to be ready for a wild ride.
Active Retirees Oct-Nov 2012
Active Retirees Feb-March 2013