How to invest in organic food globally
For many who appreciated the sense of social impact of buying Whole Foods Market stock, the company’s acquisition by Amazon.co.uk this year eliminated a great option to directly support the organic and natural food movement.
If you’re one of the many looking for new ideas in this space, an exchange-traded fund (ETF) launched last year allows investors to participate in companies that manufacture or facilitate the trade of organic foods and personal care products. The Organic ETF ( ORG )managed by Janus Henderson Investors, is described as follows:
The Organics ETF seeks exposure to companies around the world that can capitalize on our growing desire for naturally derived foods and personal care items, including: companies that service, produce, distribute, market or sell organic foods, beverages, cosmetics, supplements or packaging.
The Organics ETF generally seeks to match the performance, before fees and expenses, of the Solactive Organics Index. Currently, the fund holds 25 companies across four continents. 40% of the portfolio is divided equally between the manufacturer and the distributor of biologics based in the United States Hain Celestial Group Inc. (NASDAQ: HAIN) and Danish Bioscience Society CHr Hansen Holding ( CHYHY -1.50% ).
Other important positions include supplier of Whole Foods United Natural Foods (NASDAQ:UNFI)natural and organic food store Cabbage growers market (NASDAQ: SFM)powerhouse of the dutch organic brand Wessanen (NASDAQOTH: KJWNF)and specialist in natural soups and broths Ariake Japan Co (AKEJF).
Personal products made with natural ingredients are a secondary priority for the fund. An example is L’Occitane International SA. ( LCCTF )a French cosmetics manufacturer that investors may already know from its store presence in the United States
The fund compares its performance to the MSCI All Country World Index (AWCI). According to ETF Organics’ latest monthly report of November 30, 2017, its year-to-date return of 37% has significantly exceeded the AWCI return of 22% over the same period. Since its inception on June 8, 2016, the fund has posted a cumulative total return of almost 33%.
The Organics ETF charges a reasonable expense ratio of 0.50% and is currently trading at a premium for net asset value of 0.67%, while carrying a distribution yield of 0.84%. As a relatively new fund, it has relatively small assets of $13.3 million.
About half of the fund is invested in mid-cap stocks with a market value between $1 billion and $5 billion. Large-cap and small-cap stocks make up 20% and 30% of the rest of the portfolio, respectively. In total, the average market capitalization of the fund’s holdings is $4 billion.
The advantage of investing in global organic companies
In the United States, organic investment opportunities have tended to focus on organic grocers and their suppliers. As my colleague Brian Stoffel explainsthis has often been a frustrating experience for shareholders, as price competition has eroded capital gains in a number of companies, particularly over the past three years.
The organic ETF’s reach and diversity help insulate it from some of the volatility inherent in the US organic food market. For example, the fund’s largest holding, CHr Hansen, has been in business since 1874, supplying food cultures and enzymes to the dairy industry. Ariake Japan Co. offers packaged soup makers in Asia and overseas a palette of stocks and natural flavors as consumers begin to seek healthier ingredients even from soup and noodle purchases instantaneous.
Similarly, Wessanen, founded in 1765 and based in Amsterdam, has a range of niche organic products sold in several European countries. For example, Bonneterre, a 50-year-old label that is among the first organic brands ever sold in France.
CHr Hansen, Ariake and Wessanen have in common relatively steady and rising share price gains over the past few years, unlike many US peers. The fund’s investment outside the United States does not mean that it will not continue to take risks in the United States. ETF Organics recently increased its stake in Hain Celestial nearly fourfold, after it appears the up-and-coming organic brand aggregator has finally overtaken accounting work which started last year.
If the fund’s performance since inception is any indication, the combination of stable and often specialized international companies with higher-risk (and potentially higher-return) US investments should produce credible long-term returns. And for socially conscious investors, simply learning more about the holdings of the organic ETF’s diverse portfolio offers the secondary benefit of education on key global trends in the organic food and produce industry. .
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.