If something tastes good it’s probably worth investing in, according to fund manager Nick Train. And while that might seem overly simplistic, he has a point.
Of course we all need to eat to survive but the case for investing in the food sector goes beyond looking at the supply of basic nutrition. Arguably, it’s more to do with the habits we form around consumption and the patterns we fall into, as a result.
When we go shopping we tend to outsource our thinking to the brands on the shelves and while we might consider our tastes to be a personal choice, chances are if you instinctively go for a certain product, others are reaching for it too. Brand loyalty is hard to shake and when a company has a collection of consumer favourites in their arsenal, or they provide a set of competitors with the same underlying ingredients, investors could be onto a winner.
What to keep an eye on
From an investment point of view, food can be one of the easier sectors to understand because we all actively participate in it but good investors will look further than their own consumption habits. Top-down changes to legislation around food, and the ability of companies to adapt, are extremely important. Sudden changes to import duties, taxes on sugar and breakdowns in cross-border supply chains are all issues manufacturers have had to deal with over the past few years.
Changes in lifestyle and generational differences in shopping habits have a part to play too. If you’ve swapped the weekly shop and sit-down dinners for little-and-often purchases and quick snacks, the businesses reacting to serve you might just get you next time as well.
In a global sense, the development of the middle class in Asia prompting greater discretionary spending on confectionary, and the premiumisation of craft products in the West are just two more elements to factor into companies’ ability to grow their customer base and stay relevant.
Throw in the odd climate-induced ingredient shortage or supermarket turf war and you might start to feel rather full.
What’s a good way to invest in food?
The UK market is home to some big names in food processing and retailing, comprising UK-focused businesses and companies operating across the globe.
You might know London-based Tate & Lyle for its original sugar refining business but these days the company concentrates on enhancing product flavour, texture and nutritional content by innovatively developing raw ingredients like corn and oats.
Similarly, PureCircle is a good example of a London-listed food company with a broader reach. Headquartered in Kuala Lumpur, the firm sends its stevia sweeteners to some of the biggest food and beverage producers worldwide.
Manufacturer Premier Foods has a stable of British brands and a heritage stretching back to 1837. With cupboard stalwarts like Homepride, Oxo, Bisto and Mr. Kipling under its ownership, you might find you know the company better than you thought.
Drawing on its history of pig breeding and rearing, Cranswick supplies meat and poultry to be used in many products that end up in supermarket fridges. The company’s ‘farm to fork’ produce is sold primarily under its partners’ labels including Sainsbury’s ‘Taste the Difference’ and Tesco’s ‘Finest’ ranges, as well as a smaller portion sold under its own brands.
If you are looking for an allocation to food stocks as part of a broader diversified investment strategy, the Fidelity Select 50 might have the funds for you.
The LF Majedie UK Equity Fund counts Tesco and Morrisons alongside Twinings-owner Associated British Foods in the portfolio’s top ten holdings, and the Fidelity Emerging Markets Fund goes right back to source in its holding in China Mengniu Dairy.
Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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