Holly Black: Welcome to the Morningstar series, "3 Stock Picks." I'm Holly Black. With me is Jeneiv Shah from the Sarasin Food & Agriculture Opportunities Fund. Hello.
Jeneiv Shah: Hi, Holly.
Black: So, we're talking about three of the holdings in the fund that you're quite excited about at the moment. Where would you like to start?
Shah: We'll start with a company called DSM, which is one of our larger holdings in the portfolio. This is a Dutch-listed nutrition business. The reason we like this particular stock is, we think they're building all the capabilities for where we think people's trends and choices are going over the next decade or so. Nutrition is really important to people, things like health and wellness, big driver behind that. The company also is involved in things like infant nutrition, so manufacturing vitamins and probiotics that are used in those products. And again, we're all looking to try and improve the way that our bodies and the foods that we consume, and our bodies are then growing in that way.
Black: So, they're doing nutrition for infants, but they also do things for animals as well, don't they?
Shah: That's right. So, DSM are also a large manufacturer of animal feed for livestock animals. But one of the things that we like about them is the amount of R&D that they spend and the innovation that they're trying to bring into all of these areas. One of the most exciting projects is something called Clean Cow. So, this is an enzyme that they add to animal feed and that helps to reduce the methane emissions that come out through cows' burps. And that's a big – unfortunately, it's a big contributor to climate change in greenhouse gas emissions. So, DSM's products are actually going to do the right thing and make the food economy more sustainable and environmentally friendly.
Black: Basically, Gaviscon for cows.
Shah: Almost. Yeah, absolutely.
Black: I love this. So, that will stop cows burping and then we stop greenhouse gas emissions.
Shah: It will help reduce the emissions, yes, by up to 30%. So, it's a step in the right direction.
Black: Amazing. Okay, I'm not sure we can top that. But stock number two?
Shah: Stock number two is a company called Mowi. It's Norwegian-listed farmed salmon producer, and it's been held in the fund for over five years. So, it shows our way of being long-term investors behind ideas that we think are very powerful. So, I mentioned that we've had this shift away from red meat towards white meat, again, part of this move to healthier eating. Farmed salmon is the only way that we can really increase the amount of supply of salmon in the world. We can't go and over fish and wild catch simply isn't going to be sustainable. So, we have to use farming methods. Mowi is a leader in this space. They operate in many parts of the world, but two parts, Norway and Chile, together account for 80% of all farmed salmon supply. So, it's a very concentrated supply side. Yet, the demand is growing at a sort of 5% to 6% rate per annum as more and more people shift their diet. So, we think it's a really, really well-placed company to benefit over the next 10 years.
Black: And how do they farm enough salmon, but in a sustainable way?
Shah: That's a really good question. So, what they do is, they start by growing salmons' eggs on land. And then, when they reach an age that is acceptable, and they're able to start swimming in the open waters of the near shore coastlines, they put in these pens right near the fjords in Norway, for example and along the coast of Chile. Sustainability is very important. So, they do all sorts of things to make sure they reduce the use of chemicals to treat the fish, to prevent them getting diseases and lice. Sea lice is a big problem for the industry. And they also try to ensure that they don't have fish escapes. But again, we have to increase the supply of salmon in order to meet that growing demand.
Black: Absolutely. Okay. So, third and final one. Should we talk about the largest stock in the portfolio?
Shah: Absolutely. It's one of the most interesting and thematic ideas. The company is Ocado, which many people will have heard of. It's an online food retailer. What people don't also realize is that it's transformed itself in the last two years and become increasingly a technology and solutions business. And the idea here is, they're finding a way to improve online grocery fulfillment. So, they've been selling contracts and partnerships with several other large food retailers all around the world. An example is Kroger in the United States. Ocado over the last 20 years built a robotic automated warehouse solution. So, rather than have hundreds and hundreds of stores in order to fulfill the online grocery, they have a single warehouse and from that they can use scale to help fulfill those online grocery orders.
Black: So, they're just a huge beneficiary from the move to technology and online ordering?
Shah: Absolutely. And they use data, analytics, robots in order to optimize how much food is then kept in those warehouses. So, it's really good for food waste, but it's also more efficient and more profitable. And therefore, we think Ocado will continue to sell more and more of these partnerships with other retailers around the world. And that isn't factored into the shares today.
Black: Super. Well, thank you so much for your time.
Shah: Great. Thanks, Holly.
Black: And thanks for joining us.
