bias newsletter 2014 q1

Growth in organic foodpurchases have steadilyincreased in the past

decade. The growing usage ofpesticides, genetically modi-fied organisms (GMOs) andantibiotics in food productsare raising health concerns.Centers for Disease Controland Prevention estimates 1.1billion pounds of pesticide’sactive ingredients are used an-nually with adverse health im-pacts to people and theenvironment. The OrganicTrade Association estimatesthat 81 percent of families arepurchasing organic food atleast some of the time.Forecasts are for a compoundannual growth rate of 14 per-cent in the United States during 2014 – 2018.

Industry analysts estimate US organic foodsales were $28 billion in 2012 (over four percentof total food sales) and had increased 11 percentfrom 2011. United States Department ofAgriculture (USDA) has begun organic regulationof non-food agricultural products, such as laundrydetergent with organic coconut oil and aloe vera.

Produce (fruit and vegetables) and dairy arethe top two organic categories, accounting for 43percent and 15 percent of total organic sales in2012. Packaged foods, beverages, breads/grainshave 9 – 11 percent share. Meats, fish, and poul-

try gained the most in the past decade but is stillonly three percent of total organic sales. Non-food agricultural products account for an addi-tional $2.2 billion in organic sales.

Growth in organic agricultural production isoccurring in both developed and developingcountries worldwide. US producers have beenchallenged to keep pace with growing consumerdemand for over a decade. New statistics fromthe US Department of Commerce show that or-ganic imports, such as bananas and coffee, playa key role in meeting US demand. The organicfood movement has now gone “mainstream”.

This literature does not constitutean offer to sell or a solicitation ofan offer to purchase any securityand cannot disclose all risks andsignificant elements of such a pur-chase. BIAS’ services are only forsuitable investors who are able tobear a loss of their investment plusany undistributed profits. Examinethe information contained in theFund’s Information Memorandumcarefully before deciding to invest.Information has been obtainedfrom sources believed to be reli-able, but its accuracy and com-pleteness, and the opinions basedthereon, are not guaranteed andno responsibility is assumed forerrors and omissions.

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The organic food movement has now gone “mainstream”.

Natural and Organic Food

A GrowingInvestable Theme

INVESTMENT MANAGERS SECURITIES ANALYSTS MARCH 2014

Natural versus OrganicAnother equally important “sub trend” is a grow-ing interest in “Natural” versus “Organic” food.The term “Natural Food” is widely used in food la-beling and marketing. There are no rules in theUnited States for “Natural Food” labeling. Naturalfood is broadly defined as “foods that are mini-mally processed and do not contain manufacturedingredients or additives; such as hormones, antibi-otics, sweetners, food colouring, or flavors thatwere not in the food originally.” Many consumersare unwilling to pay more for organic products,wondering if they are really better. A 2012 surveysaid 30 percent were not willing to pay more fororganic products while at the same time naturalproducts are rising in preference. More and moreconsumers are looking at content labels.

Organic foods are produced using methodsof organic farming – with limited modern syn-thetic inputs such as pesticides and chemical fer-tilizers. Organic foods are also not processedusing irradiation, industrial solvents or chemicalfood additives. Organic food production is a heav-ily regulated industry with standards that havebeen set in the European Union, United States,Canada, Mexico, Japan and many other countries.Only during the 20th century was a large supplyof new chemicals introduced into the food supply.The organic farming movement arose in the1940s in response to the industrialization of agri-culture and was known as the Green Revolution.

Natural and Organic Food Market – Trends and Forecasts to 2018.Opportunities for an expanding organic foodmarket are significant in the United States andglobally. Major factors leading to growth are in-creased concerns regarding health issues, envi-ronmental protection, food safety, animalwelfare, and increasing acceptance and use ofnatural and organic products.

Both demand and government funding andoversight are expected to fuel growth in the sector.Organic food production emphasizes conservationof water and soil, environment concerns, reusableresources, limited use of pesticides, and chemicals.

The global organic food market is expectedto grow from $57.5 billion in 2010 to $104.7 bil-lion in 2015. North America has a compound an-

nual growth rate of 14 percent whileEurope has the largest market sharewith revenues of $28 billion. Rest ofthe world – Latin America, Australiaand others are expected to grow at thehighest rate of 16.5 percent.

Drivers for the organic and naturalfood producers are product innovation,focus on product quality and packag-ing and increasing earnings capacity.The growth in natural and organic gro-cery trends also has led to the increaseof specialty sections within traditionalgrocers. Whole Foods Market is thedominant player in the United States,although competition from new “pure

play” entrants is compressing their margins whilethey focus on volume growth. Increased compe-tition is good for consumers interested in healthyeating.

Key companies: Earth’s Best, Amy’s Kitchen,Green & Black’s, 365 Everyday Value (WholeFoods), Organic Valley, Hain Celestial, White Wave,United Natural Foods, Dean Foods, KrogerCompanies, Clif Bar & Co, Dole Foods, EVOL Foods,Newman’s Own, Stonyfield Farm and others.

BIAS portfolios hold a diversified group ofcompanies that are taking advantage of HealthyLiving Trends: Whole Foods Market, HainCelestial, and Chipotle Mexican Grill.

The global organic food

market is expectedto grow from $57.5 billion

in 2010 to $104.7 billion

in 2015.

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Natural and Organic Food(Continued from Page 1)

U.S. Organic Food Sales Reached $28 Billion in 2012

U.S. Sales ($ billion)Annual Growth (percent)

Source: USDA, Economic Research Service using data from Nutrition Business Journal, 2013.* Estimated

Putin’s actions and motives with respect tothe absorption of Crimea into Russia re-main disturbing to Western officials.

Current and former intelligence offi-cers say the keys to understand-ing Putin’s decision-making liein Russian history and in hismission to create a EurasianUnion. “After several roundsof NATO expansions andafter the US developed ex-tensive relations with someother countries in the Soviet Union,Russia feels it has every reason to push back andexpand its sphere of privileged interests, prima-rily in the territory of the Soviet Union,” saidRumer, a former US national intelligence officerfor Russia and Eurasia who’s now at theCarnegie Endowment, a Washington policygroup. Russians derive a sense of security fromdistance, Rumer said.

As the US and Allies imposed sanctions on anumber of Russian officials, some Russia schol-ars pointed to a dangerous dynamic in whichWestern moves intended to deter Moscow maybe seen instead as aggression, such as NATO’sdecision to move fighter jets to Baltic States andannounce increased military cooperation withUkraine. Indeed, the esteemed and respectedHenry Kissinger argues persuasively that theonly real solution is for

“Putin to realize that, whatever his griev-ances, a policy of military impositionswould produce another Cold War. For itspart, the United States needs to avoidtreating Russia as an aberrant to be pa-tiently taught rules of conduct estab-lished by Washington.”

What Putin is RiskingPutin took huge risks. He violated UN SecurityCouncil law and damaged his hard earned

credibility in the process. (Recall that he wasinstrumental in negotiating Syria’s surrender ofchemical weapons.) Additionally, the Russianmilitary is in decline; thus, Russia’s only realpower is its seat on the UN Security Council andthe veto that position brings. Fundamentally, theeconomic risk of sanctions could be profound asthe Russian economy grew only 1.8 percent in2013 and is expected to grow only 1.3 percentin 2014.

In the end, Putin sees any attempt to imposenon-Russian values, especially the “universal val-ues” argued by the West in general and the USin particular, as a threat. For him, Russia is morethan just a nation, a people, a state. It is also aseparate civilization.

Investment ImplicationsPutin has very little margin for negotiations. Forinvestors, prudence argues for avoiding Russianmarkets while preparing for some economic fall-out in the eurozone. Broad sanctions are sure todampen economic momentum in Germany inthe near term owing to the substantial trade be-tween the two nations. Consequently, despiteour optimism about eurozone economicprospects, we reduced our European exposure toneutral given the current Crimea situation.

The economic risk of sanctions could be profound as the Russianeconomy grew only 1.8 percent in 2013 and isexpected to growonly 1.3 percent in 2014.

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CRIMEAand Punishment

Bermuda Investment Advisory Services LimitedWessex House, First Floor, 45 Reid Street, Hamilton HM12P.O. Box HM 988, Hamilton HM DX, BermudaTel: (441) 292-4292 • Fax: (441) 292-7292E-mail: [email protected] • Web Site: www.bias.bmLicensed to conduct Investment Business by the Bermuda Monetary Authority.

Registered Investment Advisor with the U.S. Securities & Exchange Commission.

BIAS (Cayman) LimitedGovernors Square, 23 Lime Tree Bay Avenue, Suite 5-203,P.O. Box 30862, Grand Cayman, KY1-1204, Cayman IslandsTel: (345) 943-0003 • Fax: (345) 943-0004E-mail: [email protected] • Web Site: www.bias.kyLicensed by the Cayman Islands Monetary Authority to conduct investment business.

Past Performance is notindicative of future re-sults. Please note thatthe investment returnand principal value of aninvestment will fluctuateso that an investor'sshares, when redeemed, may be worth more orless than their originalcost; and that currentperformance may belower or higher thanthe performance dataquoted.

Performance Q1/14 1-Year 2-Year 3-Year Since Incept.(Annualized) (Annualized) (Annualized)

Equities Fund -1.33% 10.77% 5.38% 2.08% 0.27%

Benchmark 1.34% 19.12% 15.58% 10.53% 4.60%


Dividend Fund 1.47% 2.45% — — 4.49%

GDI Total Return 1.47% 4.81% — — 7.23%

Benchmark 1.34% 19.12% — — 19.94%

Global Equities Fund

Global Dividend Income Fund

Global Balanced Fund

Short Duration Income Fund

W W W . B I A S G L O B A L P O R T F O L I O S . C O M

Equities Q1 2014

Global equity markets advancedmarginally as volatility took

hold. Nevertheless, economic growthwas evident across DevelopedMarkets while Emerging Marketsslowed. Standouts overseas in-cluded Australia, Ireland, Italy, andSpain, while laggards in the quarterincluded China, and Japan. On asector basis, leaders includedUtilities and Health Care whileConsumer Discretionary, Telecomand Industrials lagged, all in US dollarterms.

Currencies Q1 2014

The dollar weakened againstmost major currencies despite

the Fed tapering asset purchasesand investor expectations that FedFunds rate hikes would comesooner than previously thought.The Australian dollar and the yenadvanced against the dollar on im-proved economic conditions aftersharp sell-offs in 2013. TheCanadian dollar weakened againstthe greenback on poor economicdata and a dovish central bank.

Fixed Income Q1 2014

With the exception of shorterdated interest rates in the US

and the UK, yields fell in developednations around the globe on tepidinflation and a safe haven bid fol-lowing the Russia-Crimea crisis.Expectations of the Fed raising theFed Funds rate earlier and quickerthan expected pushed yields onTreasuries maturing within five yearshigher. Corporate bonds outper-formed Treasuries in the quarter ontheir relatively better yields and solidcorporate balance sheets amid a re-covering economy.


Balanced Fund -0.79% 7.19% 4.36% 2.36% 2.24%

Benchmark 0.97% 11.29% 9.60% 7.07% 4.29%


Short Duration Fund 0.33% -0.41% -0.23% -0.07% 1.53%

Benchmark 0.13% 0.38% 0.51% 0.79% 2.62%Benchmark:Citigroup 1-3yr Treas Index

Inception Date: December 29, 2006

Benchmark:* Blended Composite†


Benchmark:S&P Global 1200 Index

Inception Date: September 28, 2012

Benchmark:* S&P Global 1200 Index


*Prior to April 1, 2012 benchmark was FTSE World Equity Index. † 60% S&P Global 1200 Index/ 20% Citigroup 1-3Yr Treas. Index/ 20% Citigroup 3-7 Yr Treas. Index

low highRisk:

low highRisk:

low highRisk:

low highRisk:

Management Commentary

Performance (as at 31st March 2014)

Listed on the Cayman Islands Stock Exchange and the Bermuda Stock Exchange.

bias newsletter 2014 q1

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