Regular readers will know that I’m involved with a sister website called www.futurefoodfinance.com.
My hunch is that the food and agricultural revolution that is coming our way in the next few decades will be pivotal for stockmarkets, which is why I launched the website. Assuming you buy into that optimistic view – and some don’t – the key is for investors is to work out how to invest in this collection of sub sectors ads they evolve and change in the next few decades. FFF already carries quite a lot of analysis, news and comment on the players in this space but that’s not a replacement for harder, quantitative measures. Which is why last week we launched our new FutureFoodFinance’s stockmarket index, focussed on the nascent foodtech sub sector.
We deliberately set out to be ‘liberal’ in our take on what constitutes foodtech – we didn’t want to focus just on the ‘sexiest’ parts of the spectrum such as alternative proteins. We also wanted to include a broad geographical mix that took in everything from China through to Israel. Precisely because an index is not an actively managed fund, that deliberately broad scope of stocks and sectors included within the index ends up taking on a life of its own and as you can see from the table below, in performance terms the numbers haven’t been great so far. Over the year to the 20th October the index has lost 2% whereas the S&P 500 has soared ahead with a 32% gain.
Table 1 : Recent performance of index versus S&P 500
|Timescale||FFFF performance||S&P 500|
|1 year to 20th October 2021||-2%||+32%|
|6 mths to 20th October 2021||-8%||+8.6%|
|3 mths to 20th October 2021||-1.36||+4%|
The brutal truth is that many of the biggest foodtech companies have found themselves tumbling recently into what constitutes something approaching a bear market! We’d like to think we’re being brave launching this kind of index at this stage of the cycle and if we’re honest , we have absolutely no idea how it will move – up or down – in the next 12 months! I’m a deep bull of the space long term but even I’m a tad cautious looking at current broader tech sector valuations at the moment.
So, what’s inside the index ? Over at www.futurefoodfinance.com I’ve just published today a deep dive into the index but here’s a few highlights for Adventurous Investor readers. Currently there are less than 40 stocks in the index whereas we believe – a mere projection, we concede – that there may be over 100 stocks within the index within a matter of just a few years. If the SPAC and IPO pipeline closes down in a brutal stockmarket sell off that 100+ projection might take a few more years to emerge, but we feel confident that the transformational forces shaping our food systems are about to have a huge impact on the public markets.
In the meantime, the index has to reckon with what ticks our boxes at Future Food Finance in terms of eligibility criteria. So, what’s inside the index? In sheer numbers terms, the index boasts a long tail of much smaller companies by market capitalisation, with 16 stocks boasting a market cap below $1 billion of which most are valued at under $500 million.
The index is market cap weighted though and thus that long tail doesn’t really have as much impact as the big, valuable mega large caps in the index such as Doordash, HelloFresh and Delivery Hero which between them account for over 35% of the value of the index. In total there are over seven businesses with a market cap of in excess of $10 billion.
The foodtech space contains within it a broad spectrum of sub sectors, listed in the table below. As you might expect, alternative proteins as a product category is the dominant one, with nine businesses offering products within that fast growing consumer segment. But in terms of market capitalisation of constituent companies, the dominant sub sector is an unsurprising one – home food delivery, offered by six of the companies.
Table 1 : Sub sectors
|Sub-sectors||Number of companies in each sub-sector|
|Vertical / Indoor Farming||2|
|Meal Kit Services||4|
As for the geography of the businesses in the index, it will probably again come as little surprise to discover that North America is the home of the largest number of businesses – 15 have their HQ in either the US or Canada. The European Union, again unsurprisingly, comes in second, with 7 businesses (in France, Germany, the Netherlands and Sweden) while the UK, Israel and Norway all boast two business HQs each. For us the surprising numbers come from Asia, with Japan hosting two HQs and China just one.
Table 2: Location of HQs
|North America (US and Canada)||15|
|European Union (Germany, France, Netherlands, Sweden)||7|
I would finish with last observation – just four of the companies in the index are currently profitable in a narrow operating sense. That sounds fairly shocking on a first read but in truth this is an index that boasts a strong contingent of tech related, fast sales growth businesses who are probably choosing to sacrifice profit margins for top line, global scaling up of their product set. The test for the broader foodtech sector will be how long it takes for these pioneers to turn market share at the global level into hard cash profits.