Disclosure: AFN’s parent company, AgFunder, was an investor in Root AI, which was acquired by AppHarvest.
There are more opportunities for everyday consumers to invest in the agrifoodtech scene than ever before. Companies producing plant-based protein, tinkering with crop genetics, and growing fruits and vegetables indoors with the help of technology, have all listed on public markets in the US over the past few years – giving retail investors the chance to buy their stock.
Among the earliest to go public was Beyond Meat. Last week it posted its annual results for 2021. Investors generally appeared to be disappointed with the plant protein maker’s performance; its year-on-year losses widened by 250%, reaching $174 million, while retail sales declined 12% in the fourth quarter. Beyond Meat’s share price has dropped 32% over the past month.
Another public agrifoodtech company reporting last week was greenhouse operator AppHarvest. The markets seemed somewhat more impressed with its performance; its share price gained almost 22% on Friday following its results. However, the company is 89% down on its debut price in March last year.
Both firms are components of the VanEck Future of Food ETF, one of at least two thematic exchange-traded funds (ETFs) set up in recent months to give retail investors access to a basket of agrifoodtech stocks (another is the Global X AgTech & Food Innovation ETF.)
It isn’t just high-growth tech companies that feature, but long-established agrifood corporates, too; at time of publication, the VanEck ETF — which is traded under the ticker symbol YUMY — has agribusiness giant Corteva as its single largest holding.
Since it launched in December last year, YUMY’s share price is down 8.8%.
AFN spoke to Shawn Reynolds (SR), portfolio manager for YUMY and the VanEck Natural Resources Equity Strategy, to find out why the investment management firm created an agrifoodtech-themed ETF and where he thinks the sector is headed.
AFN: Why is now the right time to launch an agrifoodtech-themed ETF?
SR: It is becoming increasingly clear that there are three imperatives to agrifoodtech that must be addressed.
First is population growth and hunger. While AFN‘s readers likely know this extremely well, it is worth repeating. Well before the [Covid-19] pandemic began, the goal of ending world hunger had begun to backtrack. Nearly one in three people in the world did not have access to adequate food in 2020 – an increase approximately equal to the population of the US in just one year. Recently, the [UN Food & Agriculture Organization‘s] world Food Price Index has spiked and is all too close to its record high. The ongoing crises in Madagascar and in Ethiopia highlight that it will become harder and possibly costlier to feed the world.
Second is environmental sustainability. It is also becoming increasingly clear that global and even regional greenhouse gas emission targets will not be met unless there are massive fundamental changes to our global food system and land use. The COP26 deforestation and reforestation initiatives highlight how important and timely these changes are.
Third is consumer demand: consumer desire for healthier, more sustainable, and more socially conscious food is growing significantly.
AFN: What kind of demand have you seen from the retail market for this kind of product?
SR: We have worked closely with investors for years and certainly believe they will find the strategy appealing. The feedback we have received from existing clients on our research and outlook for the space, as well as our exposure to it in other strategies, is promising. We believe this ETF and its underlying investment philosophy will align well with several potential investor objectives. We believe the strategy presents a long-term structural growth opportunity driven by a growing global population, increasing focus on environmental sustainability, and shifting consumer preferences. The strategy should also appeal to [sustainability] investors as it targets companies disrupting the food and agriculture industries in order to do ‘more with less,’ ultimately working toward solving some of the industry’s most significant challenges.
AFN: This is “the first VanEck ETF to incorporate bottom-up, fundamental company research,” according to a statement from your company. Is an actively-managed ETF really offering the same advantages to retail investors as a ‘traditional’ ETF?
SR: The majority of VanEck’s ETFs are index-based ETFs that seek to track the performance of an underlying index. Several of our ETFs are actively-managed ETFs of ETFs, but YUMY is VanEck’s first actively-managed ETF that will select portfolio stocks using bottom-up, fundamental company research that will not be beholden to a benchmark index.
We believe we are in the early stages of a multi-decade transformation. As with many other nascent investment opportunities, the thesis behind the future of food can be difficult to index. Active management will allow the fund to target existing investment opportunities as well as potentially benefit from emerging opportunities among smaller or newer companies. The fund is also poised to benefit from the management team’s extensive agricultural investment experience and sustainable investment framework. VanEck’s public and private agricultural investment efforts have provided a front seat view of the future of the sector.
To that end, YUMY won’t be constrained by company market capitalization, revenue sources and levels, or liquidity considerations that sometimes limit the investable universe of ‘traditional’ index funds. We believe this will afford YUMY the opportunity to invest in companies with new business models and exciting innovations, as well as target companies that are transitioning their business models to participate in, and lead, this transformation. We feel that an actively-managed ETF is most appropriate for this rapidly evolving industry that is developing and utilizing new disruptive technologies.
AFN: Agrifoodtech is still in its relative infancy, with few public companies aside from a few tech firms in areas like alt-protein or indoor farming, plus the established agribusiness players. Is there enough of a supply of stocks to make this compelling as an index-type investment product?
SR: We believe the current opportunity set is robust and will continue to grow. At VanEck, we monitor the broad agriculture and food industry and have developed three proprietary pillars of agrifood technology and innovation [within the ETF’s strategy]: ‘food technology,’ ‘precision agriculture,’ and ‘agricultural sustainability.’ These three segments of the broader theme contain many compelling investment opportunities that align with the drivers of expected growth in this space, many of which are currently held by YUMY.
This highlights another reason an actively-managed ETF is beneficial in this nascent market. In-depth research and due diligence of both public and private enterprises are necessary to find those companies that are making a substantial impact on the three imperatives mentioned above. We believe the stasis associated with many traditional index-tracking approaches will make it difficult to capture the rapid developments happening in this industry.
AFN: How does YUMY differ from other agrifoodtech ETFs and what do you think might make it more attractive to investors?
We cannot comment on other investment products, but believe the investment thesis behind YUMY and VanEck’s unique investment process offer a compelling investment opportunity to investors; one that we are very passionate about.