This is part of a four-part series exploring the four facets of the ProShares MSCI Transformational Changes ETF (NYSEARCA:ANEW) ETF: The Future of Work, Genomics and Telehealth, the Digital Consumer and the Food Revolution. Click on other themes where linked to read other installments.
Food is one of the most basic, and most vital, things in the world. We all need it, and as concerns about both the health of our planet and the health of what we eat rise, so does worldwide focus on the companies creating our meals.
The ProShares MSCI Transformational Changes ETF (NYSEARCA:ANEW) is an exchange-traded fund with holdings that focus on the food revolution alongside three other future-looking themes detailed above. As shared in ProShares information on the fund:
“According to a 2019 report by AgFunds, global investment in agriculture-related technology reached $16.9 billion in 2018, up 43% from 2017. Revenue from food innovations is also projected to grow from $135 billion in 2018 to $700 billion by 2030, a 15% compound annual growth rate. Leading the way, a 2019 UBS report forecast the plant-based protein segment to grow 28% annually over this period.”
Plant-based protein is a topic of conversation not just in investing circles, but in social ones as well. Part of the appeal is the sustainability of such foods — it takes more resources to create a pound of beef than a pound of most plant-based foods.
But the nature and method of creation for our food is not the only area ANEW looks at. There’s also the future of how that food gets to the consumer. Grocery delivery has gotten a boost from stay-at-home orders in 2020, but the space is expected to grow regardless.
The fund charges an 0.45% expense ratio, or $45 per $10,000 invested annually.
I had a chance to discuss the ANEW ETF with Scott Helfstein, Executive Director of Thematic Investing for ProShares, and talk about how ANEW is helping you invest in these changing food trends.
InvestorPlace: As investors become more socially conscious, sustainable and responsible farming is getting more and more in the forefront. What companies are helping farmers make the transition? How did the trade war with China impact this sector?
Scott Helfstein, executive director of Thematic Investing for ProShares: There are a number of fascinating innovations taking hold in the food industry, which is not an area people generally associate with high tech, but in which we desperately need greater efficiency. Currently, 51% of the habitable land on the planet is dedicated to food production and we will have 2 billion more people to feed by 2050, according to UN projections.
Sustainable practices like using smaller autonomous tractors that put less burden on the land, artificial intelligence algorithms to minimize water use and maximize yield, or drones that identify crop regions being impacted by blight to target pesticide use are becoming more commonplace. Deere (NYSE:DE) is one of the companies that likely helps drive automation and efficiency.
The trade war with China hit the U.S. farm and food production sector as exports of soybeans dried up. Then Covid-19 impacted the meat packing supply chain. These events are a double-edged sword. Many producers might not have the capital to invest following these exogenous events, but it is also more important to manage costs and produce efficiently.
InvestorPlace: Beyond Meat (NASDAQ:BYND) has been the face of the plant-based meat movement, but they are far from the only player. What are some of the other interesting names in the space that readers should know?
ProShares: Beyond Meat is certainly the standout, especially with many competing plant-based products coming from large and diversified food companies and conglomerates. In 2019, only 14% of Americans had tried plant-based meat substitutes, but 42% had plant-based milk products in the fridge. That suggests we are still early in adoption and there will ultimately be a number of players competing.
Food-science and ingredient innovations are essential but less-spoken-of components in the growth of the plant-based meat industry. Products have to taste good with flavor and fragrance as important elements. Established food-science company Kerry Group (OTCMKTS:KRYAY), for example, provides a portfolio of taste, scent, and texture solutions developed for use in plant-based meat products.
InvestorPlace: As the ProShares’ data on the ANEW ETF says, “According to a 2019 report by AgFunds, global investment in agriculture-related technology reached $16.9 billion in 2018, up 43% from 2017.” What companies are at the forefront, innovating technology and processes to help feed the world?
ProShares: There is investment and innovation going on across the industry from automation to genetically engineered products. McCormick (NYSE:MCK), known for flavoring and spices, partnered with IBM (NYSE:IBM)last year to use Watson and artificial intelligence in flavor development. We do not normally think about AI in the food industry, but advanced analysis will play an increasingly important role. Corteva (NYSE:CTVA), which was spun off from DuPont (NYSE:DD), is the largest seed company in the world. The product portfolio includes genetically modified seeds and advanced chemical compounds, but they also support clients with data analysis services.
InvestorPlace: The rise of food delivery didn’t start in 2020, but the Covid-19 shutdowns and stay-at-home orders certainly accelerated it. How much of this change will remain once the pandemic is in the rearview mirror?
ProShares: As restaurants slowly reopen in coming months following the vaccine rollout, we would expect demand for food delivery to decline, but we also believe that the pandemic has changed the way many people get food. For example, online purchasing of food and beverage increased 221% in the second quarter of 2020 and 162% in the third quarter. Most Americans had not ordered food online before the pandemic, but the majority indicate they are satisfied.
Food delivery will be an important segment in the growing experience-on-demand trend. The rise of so-called “ghost kitchens,” massive food preparation facilities with no actual restaurants are likely here to stay as companies invest in building this capability. Companies will not be keen on shutting those facilities after making large investments and realizing tremendous efficiencies. Some traditional fast food companies have invested significantly to build delivery and takeout capabilities in recent years.
InvestorPlace: One problem in the agriculture world that many people never even think about is zoonotic diseases, or diseases that can pass from animals to people. What are some of the ways companies in this fund are helping reduce or prevent transmission of such diseases?
ProShares: As a front-of-mind standout, Novavax (NASDAQ:NVAX) is developing a SARS-CoV-2 vaccine which just began phase 3 trials in the US. Some early signs from testing in primates shows that the treatment may keep people from passing the virus to others. Novavax also has an Ebola vaccine in phase 1 trials and both SARS-CoV-1 and MERS-CoV vaccines in pre-clinical development. Further away from the headlines, consider Neogen (NASDAQ:NEOG), which produces a comprehensive array of technology products and services to promote food safety, including zoonotic disease prevention, across food supply chains. For example, NEOGEN has a suite of diagnostic products for diseases such as Swine Influenza Virus.
InvestorPlace: What are some of the other interesting companies in ANEW that particularly service this Food Revolution aspect of the fund, and why should investors be excited about them?
ProShares: Customer preferences are changing with an increasing emphasis on healthy snacks and organic foods. Hain Celestial (NASDAQ:HAIN) is one example of an innovator in the healthy snack space. While known for tea, that only represents 5% of revenue. So, this a food company, but also a life-style play. Scott’s Miracle Gro (NYSE:SMG) is another interesting name as people are increasingly growing food at home and there are few scale players in the retail garden market. The U.S. Census Bureau recorded 8.6% growth in nursery and gardening sales in June 2020 during COVID-19 compared to another home category like furniture that was down 35.7%. Whether eating healthy, growing food at home, adding plant-protein, customer behavior and consumption patterns are changing. ANEW’s focus on food revolution is intended to keep investors at the forefront of these changes.
On the date of publication, Jessica Loder did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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