Agri-Food Tech Themed ETFs — New Investment Opportunity
For the average investor, there are more opportunities to invest in the agri-food tech space than ever before. Plant protein, crop genetics, and facility agtech companies have all gone public over the past few years, giving ordinary investors the opportunity to buy their shares.
Beyond Meat was one of the first agri-food tech companies to go public. Most recently, the company reported annual results for 2021: year-over-year losses widened 250% to $174 million, while retail sales fell 12% in the fourth quarter. Investors appear generally disappointed by the plant-based meat giant’s results, with Beyond Meat shares down 32% over the past month.
Another publicly traded greenhouse operator, AppHarvest, also reported, and the market appeared to be responding well to its results, with shares up nearly 22% on Friday. However, the company’s shares are down 89% from their IPO price last March.
At least two agri-food tech-focused exchange-traded funds (ETFs) have been established and traded in recent months to give ordinary investors access to a basket of agri-food tech stocks, the Vaneck Future of Food ETF (the Vaneck Future of Food ETF). NYSE: YUMY), and the other is the Global X AgTech & Food Innovation ETF (NASDAQ: KROP). The two ETFs hold not only high-growth technology companies, but also long-established agri-food companies. For example, YUMY holds the largest share of agricultural giant Corteva. However, since both ETFs were launched, share prices have fallen.
So, is now the right time to launch an agri-food tech-themed ETF? It is becoming increasingly clear that agri-food tech has three problems that must be addressed.
The first is population growth and increasing food crises. The World Food Security Index was already going backwards long before the COVID-19 pandemic began. In 2020, nearly a third of the world’s people do not have access to enough food, and the FAO World Food Price Index has recently surged to an all-time high. Regional conflicts, such as the ongoing humanitarian crises in Madagascar and Ethiopia, and Russia’s invasion of Ukraine, underscore that feeding the world’s population will become more difficult and potentially more expensive.
Then there’s environmental sustainability. We are all too aware that global and even regional emissions reduction targets will not be achieved unless there are major fundamental changes in global food systems and land use. Finally, there is consumer demand, as consumers’ desire for healthier, more sustainable and socially conscious foods is growing significantly.
So, agri-food tech-themed ETFs are attractive to investors. Through in-depth research in the field and an outlook on the industry, these ETFs and their underlying investment philosophy align with investors’ goals. Strategic investments in agri-food technology offer a long-term structural growth opportunity, driven by population growth, growing concerns about environmental sustainability, and shifting consumer preferences. It should also appeal to investors looking at ESG products, as companies that can disrupt the agri-food industry aim to do more with less, ultimately addressing some of the industry’s biggest challenges.
Compared with traditional passive ETFs, which track the performance of the underlying index, most ETFs with the theme of agri-food technology are actively managed ETFs. At present, the investment community is generally more optimistic about the development of actively managed funds, and believes that actively managed ETFs will increase from the current 19% to 26% in the next three years, while passive ETFs will face increasingly fierce competition. Index-tracking ETFs are expected to make up 61% of global portfolios by 2023, down from 69% today. YUMY, for example, is an actively managed ETF that selects a portfolio based on bottom-up fundamental research and is not bound by a standard index.
The investment scope of traditional passive ETFs is often constrained by a company’s market capitalization, income source and level, or liquidity factors, while actively managed ETFs have the opportunity to invest in innovative companies with new business models and are best suited for fast-growing agri-food tech industry and disruptive technologies.
Like many other emerging investment opportunities, the Agri-FoodTech-themed index can be difficult to index. Active management will allow such funds to target existing investment opportunities and potentially benefit from opportunities emerging from smaller or newer companies. Agri-food tech ETFs at least provide institutional and general investors a front-row perspective on investing in the future of the agri-food industry.
Agri-food tech is still relatively in its infancy, and although there are a range of traditional agri-food public companies, as well as a handful of tech companies in fields such as alternative protein and facility agriculture, not many agri-food tech companies have actually gone public. Therefore, existing agri-food tech ETFs will focus on the broader agriculture and food industry, including innovations in food technology, precision agriculture, and agricultural sustainability. According to Vaneck Portfolio Manager Shawn Reynolds, these three segments contain a number of compelling investment opportunities and are aligned with the drivers of expected growth in the space.
It also highlights another reason why actively managed ETFs are benefiting in the nascent market of agri-food tech, which is the need for in-depth research and due diligence on both public and private companies to find those that can have a material impact on the industry. Instead, traditional methods of tracking the index have stalled, making it difficult for investors to capture the rapid development that is happening in the agri-food tech industry.
We are in the early stages of a multi-decade transformation in the agri-food industry. The current opportunity is strong and will continue to grow. There is no doubt that agri-food technology ETFs can provide investors with a whole new investment field and opportunity. So, will this be your favorite investment product?
Originally published at https://www.tlw.com.