CF Eclectica Agriculture Fund

MONTHLY FACTSHEET
31 JANUARY 2011

After six straight months of very strong performance, it was perhaps to be PERFORMANCE (%)—‘A’ £ shares
expected that the Fund would have a bit of a pullback. This happened in
January, with the Fund falling 2.96% in Sterling terms. Much of the decline EAGF MSCI World Relative
can be attributed to the strength of the pound; the dollar share class was
1 Month -3.0 -0.6 -2.4
only down 0.7% for the month.
3 Months +8.5 +7.3 +1.2
The strongest performance came from potash fertiliser companies, led by
1 Year +26.9 +19.1 +7.8
Potash Corp whose shares rose 14% in the month as the industry concluded
a supply contract with China at higher prices. The other most profitable Year to date -3.0 -0.6 -2.4
subsector was machinery, with strong performance from Deere, Kubota
and Lindsay. Laggards came primarily from holdings in emerging markets, Since launch +11.8 +9.0 +2.8
most notably Indonesia and China, as local stock markets suffered broad CAGR since inception +3.1 +2.4 +0.7
selloffs driven by fears of higher inflation. Although much of this
Calendar Years
inflationary pressure has come from the food sector (onions in India and
chillies in Indonesia grabbing the headlines), which makes up as much as 2007 (from 08 June) +14.2 +0.0 +14.2
40% of the CPI basket in these countries compared with 10% in a developed 2008 -34.6 -19.3 -15.3
market, agricultural shares were dragged down with the overall markets.
2009 +21.1 +17.3 +3.8
We still remain optimistic about the outlook for the sector, with little 2010 +27.4 +15.8 +11.6
evidence of demand destruction from higher prices as yet. Usually ethanol
and animal feed would be the first segments to show signs of distress, but
thus far we are seeing very strong ethanol demand (crude oil trading over Agriculture Fund MSCI TR World Net Index
$100 helps) and it seems that many of the poultry and hog producers (such 140
as Tyson and Smithfield) have hedges in place which will at least allow them
120
to get through the next quarter or two without too much exposure to spot
input costs. The strength from these two sectors has taken domestic US 100
corn stocks down to the historically low levels of 1995/96.
80

With such tight stocks, small changes in production estimates can massively 60
impact prices. The news over the last month has been mixed. On the 2007 2008 2009 2010 2011
positive side, timely rains in Argentina mean that their harvest will be
disappointing rather than disastrous, and the Brazilian soy crop looks like it Past performance is not a guide to future returns
could be a record. However, conditions elsewhere are less favourable with
winter crops looking pretty feeble in Kansas and Mexico, not to mention a NAV $¢ £p €¢
recurrence of the recent years’ drought in the wheat-growing areas of A shares 177.22 111.82 130.12
China. After selling 33 million tonnes of grain and oilseeds from C shares 178.32 113.29 131.66
government stockpiles in Q4 2010 alone despite another record harvest, it
AUM £161.9m
will be interesting to see how much firepower the Chinese have left in
2011. And with such uncertainty regarding supply and rising unrest in the SECTOR ALLOCATION (% NAV)
Arab world, we could see price spikes as state grain buyers compete to
secure their own country’s supply of staple food crops like wheat.
Crop Nutrition (38.5) Infrastructure (11.5)
Stock Insight: Potash Corp
Land (16.1) Machinery (14.3)
Whereas other fertiliser markets like urea function much like any normal
industry, the potash industry is still dominated by the large benchmark
deals signed between the Canadian and Russian producers and the Chinese Protein (7.2) Seeds (11.4)
and Indian importers. These customers can be stubborn; after overly-
aggressive price increases in 2008 the buyers held off for over a year, taking
demand down from 55mt in 2008 to 30mt in 2009. With capacity a little
over 60mt, 2009 was a tough year for an industry which could only operate TOP 10 HOLDINGS (% NAV)
at 50% utilisation; 2010 wasn’t that much better. However, after a couple of
1 Mosaic 6.0 6 Deere 4.3
years of mining the soil, and spurred on by higher crop prices and some
evidence of loss of fertility with lower yields in 2010, farmers are back this 2 Potash Corp. 6.0 7 CF Industries 3.9
year and demand looks set to rise above 55mt. Potash mines are generally 3 Yara 5.9 8 Agrium 3.8
old and struggle to run at full capacity, so a year of 55mt demand leaves the 4 Monsanto 5.7 9 Brasil Foods 2.7
industry pretty close to its feasible operational capacity (this year alone
5 Syngenta 5.2 10 K+S 2.5
we’ve already had stoppages at K+S’s Sigmundshall mine in Germany and
strikes in Israel).
Portfolio data as at 31 January 2011. Source: Eclectica Asset Management.
 CF Eclectica Agriculture Fund
MONTHLY FACTSHEET
31 JANUARY 2011

As the market tightened up the industry had managed to get prices in the US MANAGER DETAILS
market above $500/t and the export markets of Brazil and SE Asia at $430/t,
but the question was whether they could persuade the large importing Investment manager Eclectica Asset Management LLP
nations to pay up. It is a sign of the tightness of the market that the Chinese ACD Capita Financial Managers Ltd
signed up for a relatively short six-month contract at $400/t, some $50/t Administrator Capita Financial Administrators Ltd
higher than the previous settlement. This has quickly been followed by a
FUND DETAILS
recalibration of the global price to $460/t, and attention now turns to India,
which given its lack of domestic production is actually likely to be the largest Share classes £/€/$
importer in the future. India works somewhat differently from China, where Structure UCITS III sub fund of CF Eclectica Funds
the negotiations take place through state buyers like Sinofert, who then sell
Dividends Accumulated
the product at whatever price prevails to the farmer, who can take it or leave
it. In India fertiliser is subsidised centrally and the import price is worked out ISA/PEP eligible Yes
backwards, starting from how much of the budget the government is willing Price reporting Daily in the Financial Times
to spend and how much fertiliser they think is needed to feed a billion people. FUND IDENTIFIERS
At this time of year, when the budget is being drawn up, speculation is rife
ISIN SEDOL
about how much the Indians will pay as the numbers never add up. Usually
pragmatism prevails and India pays what is necessary to secure supply, and I ‘A’ Shr (£) GB00B1XGDS05 B1XGDS0
suspect this is likely to be the case again in 2011. This contract, perhaps at a ‘A’ Shr (€) GB00B1XGDP73 B1XGDP7
slight premium to the Chinese price, will tighten the market up further and set
‘A’ Shr ($) GB00B39WY943 B39WY94
the scene for further price increases throughout the year. As such, we
maintain the Fund's large positions in potash producers such as Potash Corp. ‘C’ Shr (£) GB00B3B02F88 B3B02F8
‘C’ Shr (€) GB00B3B02P86 B3B02P8
Incidentally, it is a good job the Canadian government denied Potash Corp ‘C’ Shr ($) GB00B39WYQ11 B39WYQ1
shareholders the opportunity to sell for $130/share to BHP Billiton. Indeed, it
FEES, COSTS AND REDEMPTION STRUCTURE
turns out that using current year’s consensus earnings forecast (before
factoring in the full P&L impact of these price increases) the offer would have Initial charges Up to 5% (class A); up to 1% (class C)
valued this hugely strategic asset on only 13x earnings! Anti-dilution levy Up to 0.75% on subs/reds over 5% of NAV
Annual charges 1.75% (class A); 1.25% (class C)
COUNTRY BREAKDOWN (% NAV)
Minimum investment £5,000 (class A); £2m (class C)
Australia 2.0 (equivalent for € and $)
Brazil 0.5
Canada 11.9 Dealing Daily at 12pm
Germany 3.4
Hong Kong 2.8 Dealing line 0845 608 0941
Indonesia 4.8
Japan 1.0 SERVICE PROVIDERS
Jordan 0.5
Malaysia 4.2
Netherlands 1.5 Depository BNY Mellon
Norway 5.9
Poland 0.8 Auditors Ernst & Young
Singapore 9.3
Sweden 0.5 Accounts date Financial year-end 31 December
Switzerland 5.7
UK 5.6 SALES AND MARKETING
US 34.4
0 5 10 15 20 25 30 35

FUND FACTS Patrick Cooper / Harry Dickinson / Edward Higgin / Richard MacLure / Steve Smart
Launched 08 June 2007
T. (0)20 7043 0500 / E. team@harringtoncooper.com
Fund manager George Lee
Eclectica: Joe Rouncefield / Investor Relations
Benchmark MSCI TR World Net Index T. (0)20 7792 6420 / E. marketing@eclectica-am.com
Number of holdings 64

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performance is not a guide to future performance. All charts are sourced from Eclectica Asset Management LLP. Net Asset Values are as at the date of the document. (c) 2005-11 Eclectica Asset Management LLP; Registration No. OC312442; registered
office at 6 Salem Road, London, W2 4BU.