Why Oliver Is Tucking Into This Food-Based ETF

Why Oliver Is Tucking Into This Food-Based ETF

over 2 years ago3 mins

Mentioned in story

Summary:

  • This exchange-traded fund (ETF) is an easy way for investors to tap into the trend of sustainable food – a market that’s forecast to grow 10% a year

Tell us about yourself, Oliver

I’m a creative designer by trade but recently took part in a business course that kick-started a fascination with the behaviors and strategies of businesses. I’ve been investing since January this year so I’m still very early in my journey.

What’s the pitch?

The Rize Sustainable Future of Food ETF (ticker: FOOD). Conscious consumers, United Nations sustainability goals, and progressive government policies are driving the growth of the sustainable future of food. Conservative estimates have put the growth rate of the industry at an annualized 10%. A Statista survey suggests that by 2040 meat alternatives will account for more than 50% of all meat consumed globally. FOOD gives access to 45 companies that are positioned to ride this theme. This is a long-term play and – although it’s US-centric – it has minimal overlap with the S&P 500 so would sit nicely in a diversified portfolio. The ETF has an expense ratio of 0.45%. 

What does this ETF do?

FOOD is a themed, passively managed ETF that aims to replicate the performance of the Foxberry Tematica Research Sustainable Future of Food USD Net Total Return Index. The Index is designed to provide exposure to companies that are innovating across the whole food value chain to build a more sustainable, secure, and fair global food system. It’s rebalanced semi-annually. 

What’s your three-point investment thesis?

  • Sustainability in the food industry is a growing trend, driven by conscious consumer behaviour and progressive government policy. Research predicts the area is set for consistent growth over the next 10 years.
  • FOOD gives exposure to the whole value chain – not just meat alternatives, but everything from circular practices to sustainable packaging. If smaller innovators like Beyond Meat get squashed by the heavy hitters in the industry, you’re not going to lose everything.
  • There aren’t a lot of ETFs following this trend and this was the first of its kind in Europe. It’s potentially a very good long-term play due to continually increasing attention in the space and would sit nicely in a balanced portfolio since it tracks smaller disruptors that don’t overlap too much with bigger market plays like S&P 500.

What are the key events you’re watching?

  • The performance of the top holdings.
  • Semi-annual rebalances: the new holdings and proportions.

What’s the upside potential if your thesis is correct?

There is a lot of potential growth in the future of a sustainable food industry and it’s an area often overlooked. Research suggests the industry will grow around 10% year on year so this ETF could see consistent growth long into the future.

What are the big risk factors you’ve spotted, and how do you plan to mitigate them?

  • The index predominantly tracks disruptors and smaller firms that are at increased risk of competition.
  • The index doesn’t track China, where a lot of innovation is happening around plant-based food. This could be addressed with another ETF.
  • With only 45 holdings, the overall performance can be heavily impacted by the performance of single companies and poor management.

What’s your take on Oliver’s pitch? Send you thoughts our way here.

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