From food-borne disease, to global population growth, and the impact of intensive farming methods on the environment, feeding the world has long been an enormous and multifaceted challenge.
And the statistics indicate it’s not getting better. The Earth’s population is expected to rise from 8 billion to 10 billion by 2050, meaning a 60% increase in food demand in the next 30 years. Perversely, while 2 billion people worldwide are overweight or obese, while another 2 billion are undernourished. Meanwhile, food production systems are responsible for a third of global greenhouse gas emissions.
Food-related issues have been further highlighted over the past 15 months of pandemic and lockdown, as we’ve all thought more about our own health and the food we eat, grappled with the concept of potential shortages, and considered the realities of the need to tackle climate change.
Inevitably, though, a crisis and its responses throw up opportunities. In fact, according to Alex Howson, manager of the Pictet Nutrition fund, we are now at an inflection point as far as the nutrition investment theme is concerned.
Investing in Food and Nutrition
Howson points to a potent combination of new regulation to manage environmental change (which will affect food production), increasingly health- and climate-conscious consumer behaviour, and huge innovation taking place to find new ways of feeding more people, more healthily and with less damage to the planet.
Innovative ideas include (among many others) food supplements designed to improve resilience to disease and boost the nutritional content of food; ingredients and flavourings to help fight obesity; plant-based meat and dairy alternatives that reduce reliance on livestock; precision farming and agricultural genetic engineering to create, for instance, more drought-resistant crops suitable for marginal land; and logistics solutions such as food waste sorting and sustainable packaging.
So how can private investors tap into this huge potential growth area? There are only a few dedicated food and agriculture investment funds currently available, and their universe extends to the whole agriculture value chain, not just those companies seeking to solve global food issues.
Pictet Nutrition comes from a thematic investment specialist firm, says Ryan Hughes, head of active portfolios at AJ Bell. “Importantly, its focus is on helping secure the world’s future food supply, rather than simply trying to exploit potential food shortages in the future, and this positive approach sits well with the increasing importance of ESG factors,” he adds.
The fund also sets out to exclude various unsustainable categories in food, logistics and agricultural technology, including companies producing processed meats or confectionary, and manufacturers of plastic packaging supplying the industry.
One holding is the leading Dutch-listed ingredients company DSM (DSM), which works both on human dietary supplements and solutions and on improving the diet of livestock to reduce methane emissions and boost health without resorting to antibiotics.
The Sarasin Food & Agricultural Opportunities fund has nutrition, dietary change and health as the largest sub-theme of the 39-stock portfolio, accounting for around 40% of the total value.
Fund manager Jeneiv Shah is currently focusing attention indirectly through several flavouring and nutrition ingredients companies, including DSM and also Irish-listed Kerry Group (KYGA), which partners with big food manufacturers such as Nestle to find ways to reduce salt, sugar and fat content in products.
“Ingredient and taste companies are very well placed to help improve the nutritional content of food products, and not just in the West,’ Shah explains. “People in developing countries may not be able to afford or have access to a range of fresh food and so may be more reliant on more cheap packaged food. That’s why we think these companies have a long runway for growing their revenues.”
Jo Thorne at Hargreaves Lansdown highlights a third fund option, Blackrock Nutrition. Like the other two funds above, it has a focus on companies actively combating global sustainability challenges in nutrition, but can also invest in the wider food and agriculture value chain.
Finding Diversification
For a broader approach to the theme - and, to date, a more successful performance record than the more focused thematic funds (though that could be expected to change, if Howson is right about nutrition being at an inflection point) – Ryan Hughes prefers the Liontrust Sustainable Future Global Growth fund.
“Over 8% of the fund's portfolio is invested in companies focused on improving the efficiency of industrial land agricultural processes, with another 5% specifically looking at enabling healthier lifestyles and healthier foods,’ he says. “This is combined with a very wide range of other themes, all focused on a sustainable future, that sit well with those investors wanting to ensure they are investing in the companies of the future rather than the past.”
As the EAT Lancet Commission recently put it: “Food is the single strongest lever to optimise human health and environmental sustainability.” As global health and climate crises increasingly focus consumer and corporate attention, maybe its time as an investment theme has arrived.
