Investors who believe that investing in companies involved in the food chain is a niche area could be missing out on some of the best growth opportunities in the near future, according to Sarasin & Partners’ Henry Boucher and Jeneiv Shah.
Boucher and Shah, managers of the £410.8m five FE Crown-rated Sarasin Food & Agriculture Opportunities fund, said the food chain is much bigger than most people think and that there are many investment opportunities here.
“It’s a really fascinating part of the investment world that isn’t focused on by many other people,” said Boucher. “The food chain is a vast market and most people think of it as a sort of tiny niche of the stock market when it is in fact the world’s biggest employer, by far.
“For instance, if you take the number of people involved into the growing food, retailing food, processing food every day, it’s an enormous industry. And it’s completely global.”
The FE Alpha Manager said opportunities frequently arise due to the impact of changes in the political environment, currencies, weather, climate change, fashion, diet and demographics.
Looking across the whole food chain “from field to fork”, the managers consider not just current food trends but how they might evolve in the future.
“If you imagine along that chain – from the production of food through to processing it and then selling it either in supermarkets or restaurants – that whole chain has a total value and that value is growing over time,” said co-manager Shah, who joined the fund in 2017.
“We’ve got two or three big drivers behind that: the number of people on the planet, going from 7.5 billion today to over 9 billion in the next couple of decades, people’s wealth rising and people moving into cities.
“That whole food economy is growing in size and we want to capture that growth.”
Projected total population growth
Source: UN
Given the thematic nature of the strategy, the managers target companies that also more long-term focused.
“We’re going to be in all the companies we own for a very long time and are intending to be very long-term shareholders,” said Boucher.
“We’re there for a combination of reasons but typically because we see an evolving tail wind trend that the company can pick up on and continue to develop its business as a result of that growth.”
While growth will be harder to come by in the developed world as markets enter the latter stages of the business cycle and investment opportunities dry up, Boucher said there will still be some growth to be had in developing markets which will continue to benefit from some of the broader demographic trends.
“You will still have this standard living improvement and lifestyle change and so the stocks we’re looking for are those which are capturing the sort of positive trends,” said the manager.
“We have no need to be involved in anything that is a sort of mature and potentially risky business model; we want ones that are going to keep delivering fairly steady growth over time.”
Underneath the demographic drivers of the fund are three sub-themes that the pair watch: dietary change, food away from home and technology & efficiency.
Dietary change relates to changing diets in both the developed and developing worlds, food away from home covers how people are consuming food and technology & efficiency looks at how food is produced, moved and contained.
“We’re about to go through a change of decade and about to move into the 2020s,” said Boucher. “Will it be a remarkably different decade? I don’t know.
“The thing we see is that the opportunities in some industries are slowing down, but in the food industry we’ve got a huge range of different opportunities.”
In particular, technology and efficiency in the food chain are likely to improve with Shah noting that up to $1trn of food is wasted annually.
“Technology across the whole chain, designed to make the whole food system more efficient, more sustainable and more climate-friendly, is really the next 10-year view,” said Shah.
“It [food waste] accounts for such a huge proportion – something like 8 per cent – of all global greenhouse gas emissions and that’s something that isn’t really talked about enough. We talk a lot about fossil fuels, electric vehicles, but I think the food waste and the food economy being inefficient is getting more and more attention now.”
To identify potential investee companies, the pair employ a bottom-up approach, which helps to make the portfolio more diversified.
“For example, DSM – the Dutch-listed nutrition business – is essentially a company that manufactures animal feed but also human nutrition products and things like vitamins that go into infant nutrition formula,” said Shah.
“This is a really powerful theme because it’s playing into demographic change, lifestyle change, the fact that people are caring about health and wellness and nutrition.”
Sarasin Food & Agriculture Opportunities, which launched in March 2008, appears on the FE Invest Approved List.
“Sarasin’s thematic approach helps to identify winners over the long term in the global food and agriculture space,” said FE Invest analysts.
“We particularly like Boucher’s approach to investing in the food spectrum as it provides a less volatile method of accessing what can be a very difficult industry and he has been key to the fund’s success.
“The team manages risk on a stock level and monitors how much could be lost in any 20-day period. The fund should be used as a satellite investment, given its sector focus.”
Performance of fund over 5yrs
Source: FE Analytics
Sarasin Food & Agriculture Opportunities targets growth over a rolling five-year period and has made an 80.08 per cent total return over the past five years.
It has an ongoing charges figure (OCF) of 0.98 per cent.