Livestock markets can be seen as a truly alternative beta source, having a low to negative correlation to mainstream assets across over the medium to long term and at best an intermittent weak correlation over the short term.

SBK is therefore likely to be a useful tool as a risk diversifier in a portfolio weighted toward traditional asset classes with high risk tolerance as part of an allocation to alternative assets.

Unlike some agricultural themed investments in managed funds or direct equities, SBK is not burdened by the significant capital cost of infrastructure or the operational costs typically associated with gaining exposure to the livestock industry directly. 
 
Zenith’s View
The Fund underwent restructuring during 2012 which saw a profit share arrangement replaced with a pure leasing model. Fundamentally, this shift means that SBK now purchases the stock and effectively leases them to landowners rather than simply placing stock with a landowner at no charge.

This means that the model moves from owning stock with trading profits fully production and market linked (with associated volatility) to leasing which significantly decouples from these forces and provides a more stable return. As such, it is now landowners who are exposed to potential trading profits and losses rather than the Fund although it is important to note that SBK retains ownership of the stock at all times.

The full benefits of the restructure are yet to be fully visible in the operating results however Zenith is confident that the new model will provide a less volatile experience for investors.

The RE has also recently introduced a series of short-term incentives relating to warranties by RFM on certain metrics and fee rebates to advisors. Zenith rates RFM StockBank Recommended.

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