Farm living is the life for fund manager Jeff Auxier. And he says supermarket stocks are the place to be as food prices continue to rise.
No, it's not a reality television version of
. Jeff Auxier actually grows hazelnuts for export to China when not overseeing the $104 million
Auxier Focus fund
. He is applying real-world agricultural insights to his stock picking as the prices for commodities, including hazelnuts, climb ever higher.
Harvesting winners in the bear market, however, has been a tougher task. The value-based fund is down 11.6% year-to-date, hard-hit by its heavy exposure to insurance and health care.
Nevertheless, Auxier is no short-termer, successfully buying stocks for the long haul. The fund has returned an average of 6.5% annually since its inception nine years ago this month, compared with 65 basis points for the
. A basis point is 1/100th of a percentage point.
Cumulatively, the fund has risen 75% vs. 6% for the index over the same period.
spoke with Auxier about rising food prices, supermarket stocks and Berkshire Hathaway's disappointing returns.
How does your agricultural experience help you make investment decisions?
Having lived on a farm since 1988, I have studied farming and commodity cycles with a great deal of passion. I strongly believe having your own money at risk always helps -- especially to feel the pain of downside cycles and to appreciate the competition in global markets. I am always mentally "buying entire businesses" for the fund and the experience on the farm helps to better understand supply and demand relationships and the perils of operating off of emotion instead of the ledger.
More directly, we bought
two years ago at its book value of $16 because of the hay equipment we needed -- we also raise hay in addition to hazelnuts. The rising price of grains let to higher hay and greater demand for hay equipment. We lightened up on the position around the $70 level.
Speaking of AGCO, I interviewed the CEO on TheStreet.comTV not too long ago and he was confident that food prices will continue to rise. Do you agree?
Food prices, adjusted for inflation dropped over 70% from 1975 to 2005. Global investments in agriculture research have dropped over 50% since 1990. This underinvestment, together with the increasing demand for milk, meat and other food proteins from an emerging global middle class, will continue to elevate food prices.
Biofuel mandates have added further demand for corn leading to higher prices for all cereal crops. Finally, protectionist measures in food are widespread globally which hampers the free market's ability to match demand with supply
What stocks do you like now and why?
I like companies that can turn over inventories rapidly and actually benefit from food inflation. In the Auxier Focus Fund, we have positions in companies like
. In the face of a deleveraging economy, consumers are allocating more of their discretionary funds to food and these companies benefit from the trend toward private label and are taking share from the dining out dollar.
You own Berkshire Hathaway( BRK-A) stock as well as Buffett holdings Coca-Cola (KO) - Get Report andBurlington Northern( BNI). Are you disappointed with Warren Buffett's performance this year? He's down over 16% so far this year.
My clients owe any success in their investment returns to a series of phone calls I made to Mr. Buffett in 1982. He was nice enough to give some very valuable career advice and since I have tried to be consistent in adhering to his philosophy. John
and whose values and long-term approach I have tried to put into practice.
The health care stocks tend to get hit hard as we approach major elections. Wall Street hates uncertainty which creates bargains. These companies are on the leading edge when it comes to solving the problems consumers face in health care. The business is cyclical and we appear to be in a down cycle.
Still, these companies have double digit free-cash-flow yields, strong balance sheets, and enormous investment portfolios to see them through the toughest economic challenges. I think that current prices are extremely cheap given their dominant industry leading positions. We tend to "price" our investments -- when the price is right we buy. Often that means buying when the news is bad and uncertainty is running high.
How is your hazelnut business is doing?
The hazelnut business has been solid with strong demand out of China. Last year we sold over 70% of our crop to the Chinese and the demand for protein appears to still be growing. This year we should do over sixty tons of nuts.
The last couple of years the price for hazelnuts has been at historic highs at around $1 a pound. For years it ranged between 35 cents and 60 cents. Yields are growing and crop prices are firm. We generally produce a higher quality nut than Turkey -- the number one global player.
Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.