At the turn of the year Mark Schneider celebrated his 4th anniversary as CEO of Nestlé. The German-American has been giving the food giant a new face since January 2017, completing more than 50 transactions in the first three years of his reign alone. Some 12% of the group's sales were affected by the sales and acquisitions, with a clear trend towards healthy and sustainable foods becoming apparent. In adjusting its portfolio the industry colossus is responding to the rapid changes in nutritional behaviour by many consumers while at the same time trying to get back on track for growth. Nestlé has lost significant momentum in recent years (see graph). In that regard the Swiss group exemplifies the entire sector. Despite this development and the enormous structural challenges, the heavyweights are still valued highly by comparison with mid-size and smaller food companies.
The experts at Tareno AG see this situation as comparable with the pharmaceutical industry. Six to eight years ago, the main pill producers were heading towards the oft-cited patent cliff. At the same time, their research and development pipelines were proving to be not especially productive. The lack of innovation together with ample coffers and favourable financing terms triggered a wave of M&As in the biotech sector. The asset manager reckons that these events could be duplicated in the food industry. To maintain their dominant position, the major groups could exploit their valuations and the chronically low interest rates to push through purchases. Tareno discerns enormous investment opportunities in the "market anomalies" outlined. It was against this background that the Basel company designed its Future of Food Index. "We see the added value for our approach being in mid-size companies which are innovative and flexible enough to help shape present trends around the "Future of Food" issue and to profit from significantly higher growth rates," the initiators explain.
When selecting the shares, the experts first filtered out of the entire food sector around 220 companies covering the "Future of Food" value chain. The focus is on the agriculture, agritech, food production and food distribution segments. Each company is evaluated on the basis of ESG sustainability criteria, fundamentals and momentum. In addition to the resulting scoring, the managers put further qualitative features under the microscope. "These factors highlight the relative attractiveness of a company in the particular phase of the economic cycle and have an influence on the weighting of the individual items in the portfolio," the index sponsor explains. The allocation process is accompanied and supported by quantitative calculations. In terms of size, the threshold for inclusion in the index is a market capitalisation of CHFmn 100 and an average daily trading volume of around CHF 100,000. Leonteq is offering a way to invest in this new benchmark with a tracker certificate. On board alongside Tareno, which is responsible for the underlying, is PostFinance as the guarantor of this issue. The management fee for the actively managed certificate (AMC) comes to 1.09% p.a.
For this small contribution investors can add the Future of Food Index to their portfolio with no term limit. The starting line-up includes 37 shares, with the USA accounting for 19 of the companies. Among these is Medifast. With its "OPTAVIA" programme, among others, the company is geared towards a society that wants to lose weight and is becoming increasingly health-conscious in its diet. Under this programme, coaches support customers by advising them on the subject of healthy eating and slimming while at the same time marketing the corresponding proprietary products. Generally, however, the entire value chain is playing a key role in the transformation of the sector. The index includes, for instance, agritech companies such as Bucher Industries, Deere & Co., which is well known for its John Deere agricultural machinery brand, Swedish probiotics specialist BioGaia, a global supplier, and Genus and Novozymes, which are helping to shape the future of the industry in the biotech sector. To improve its environmental footprint, the industry is also moving towards more sustainable packaging. Stora Enso is seeking to replace plastic with paper-based and compostable boxes, cups and cutlery, for instance, while Sysco is a particularly innovative caterer. To conclude, the new tracker certificate gives investors the opportunity of a diversified investment in the transformation of the food sector. The regular review of the index ensures that this investment always reflects the constant changes in the menu.
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