How investors can rely on the megatrend

Cologne According to a projection by the United Nations, the world population will increase from 7.7 billion today to 9.7 billion by 2050. Enormous investments are necessary to provide all these earthlings with sufficient, healthy and sustainable food. Investors can invest in this area without speculating with scarce resources.

According to experts, there are enough resources to feed everyone. The challenges lie elsewhere: often in the distribution and access to food and drink as well as preliminary products. According to the World Food Report, 2.3 billion people suffer from inadequate or unhealthy nutrition.

At the same time, 1.9 billion people are overweight or even obese. And food production requires huge amounts of land and water resources. In short: the topic of nutrition is an important key to solving social and ecological problems.

There are opportunities for investors to earn money from the nutrition megatrend without getting the much-discussed topic of food speculation in their portfolio. Armin Sabeur, board member and portfolio manager at the fund provider Optinova, which specializes in commodities, points out: “We completely refrain from speculative transactions in food because of the social consequences that can arise from price fluctuations.

The fund manager emphasizes that the return on “Optinova Food, Farming & Water” (ISIN: DE000A3CWRN9) should be driven by successful companies, technical progress and the successful supply of food and water to as many people as possible. The fund was only launched at the beginning of November 2021, so it does not yet have a longer track record and is therefore not listed in the adjacent table.

Sabeur names three examples of agricultural companies from the fund’s portfolio: with Ingredion, a US provider of starch products, sweeteners, dietary supplements and biomaterials.

Then Trimble, a manufacturer of geodetic measuring instruments for agriculture, among other things. The fund manager explains that the company is a leading provider of satellite positioning systems, such as those used in the automatic steering of tractors.

In the water sector, the fund invests in Metawater: the Japanese company mainly deals with the planning, construction, repair and management of water treatment and sewage treatment plants. Overall, Sabeur wants to cover the entire food sector with 50 companies in its fund – from traditional food manufacturers to innovative technology companies.

Stronger and more stable fundamentals

DWS Invest Global Agribusiness, managed by Stephan Werner, has a decent track record and even slightly positive performance this year. Werner explains: “The fundamentals of agriculture have improved to a level that has not been reached in the last eight years.”

The manager of the Deutsche Bank fund subsidiary expects US farmers to have their strongest net income this season since 2013, attributing this to higher grain prices and government support for US farmers. In addition, farmers are benefiting from increased demand for corn and soybeans from China, as Werner says.

The fund manager believes that valuations of agribusiness companies are at attractive levels. Agricultural stocks could also serve as an inflation hedge.

According to him, the fund portfolio includes companies along the entire value chain – from cultivation to the product in the supermarket. Ideally, the companies would have a high market share and strong pricing power, explains the fund manager of his selection.

A look at the top positions includes, for example, the two fertilizer manufacturers Nutrien (Canada) and CF Industries Holdings (USA). The US food and agricultural group Archer-Daniels-Midland can also be found, whose share price is currently at an all-time high, as well as FMC, a manufacturer of crop protection chemicals and bioplastics, among other things.

spirit of optimism in the industry

Another investment opportunity is the Pictet Nutrition. Simon Frank, fund advisor at Swiss company Pictet Asset Management, addresses the social and ecological challenges described above. “Our food systems need to improve access, quality and sustainability of food, and companies that provide solutions in these areas should be able to benefit from this structural change.”

Many concepts for the urgently needed change are on the table, he says – they just have to be applied. Nevertheless, numerous regulations and changes in consumer behavior are slowly having an effect, as evidenced, for example, by the boom in meat substitutes.

Due to innovations, there is a spirit of optimism in parts of the nutritional value chain. Keywords here are vertical farming, sustainable packaging and probiotics and enzymes as an alternative to antibiotics.

The nutrition sector is considered to be a relatively conservative equity investment because it tends to be less volatile. The fund managers also emphasize steady growth prospects, which promise positive returns. This can be attractive, especially in uncertain times like the current one.

However, these funds are not cheap. In addition to the annual management fees, there is usually a sales charge of five percent. The high costs are likely to be a major reason why no fund manager has recently beaten the benchmark.

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