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When it comes to accessing food stocks, advisors have some options. Broadly speaking, those options have been steady over time, but they also may not be adequately evolving with the times.
There's the old standby of the consumer staples sector, which is has been a go-to for conservative investors looking to dial down volatility while capturing above-average income. On the other side of the consumer ledger, there's consumer discretionary. That sector is home to restaurant stocks, many of which besides McDonald's (NYSE:MCD) go overlooked by clients and nearly all of which are vulnerable to economic downturns as the 2020 coronavirus bear market proves.
At first glance, the food industry may not appear to be evolving or ripe for disruption. If anything, the aforementioned investment options have remained rather staid over the years. However, more than many clients likely realize, there is disruption afoot in the food space and the industry is playing an increasingly prominent role in sustainability.
Delicious Ideas Abound
As has been widely noted, including in this space, clients are warming to sustainable investing strategies and many that are doing just that are affluent clients or on their way to joining that stratosphere.
Getting choosy with food allocations is something that resonates with that type of client. They're very likely looking to avoid stocks like McDonald's and Coca-Cola (NYSE:KO) despite Warren Buffett long being advocate of the latter. In fact, correlations between rising incomes and food consumption trends are something astute investors are mindful of.
“And history has shown that as people get richer, one of the first things they do is to spend up on better-quality, more nutritious foods for themselves and their families,” writes Maire Lane, Invesco portfolio manager. “This simple fact has a host of investment implications across the developed and emerging worlds.”
One way of looking at that is consumers are increasingly willing to pay up for healthy food with premium ingredients, particularly as their incomes rise.
Those are relevant points to advisors and clients prioritizing sustainability, but many of the go-to, old guard food investing options lack adequate exposure to new, healthier trends. Some individual companies have made acquisitions to bolster their healthy/premium ingredient lineups, but those deals aren't yet large enough slices of revenue to move the needle. Likewise, index funds with large-cap consumer staples exposure will almost assuredly leaving clients wanting more when it comes to food sustainability investments.
Speaking of Premium Tastes...
At an investable level, there's momentum for premium foods. Hamburgers, an American classic, are a case study in this scenario.
“The global appeal of burgers shows that people may have the same tastes worldwide, even if they historically have had very different cuisines,” notes Invesco's Lane. “And it is not surprising that burger restaurants are where innovations like plant-based meat have seen much success. There are many different companies making meat from non-animal sources, and Novozymes can help this process to get the right texture and taste by providing specialized enzymes.”
Point is are showing they're willing to pay up for quality whether it's with burgers, cocktails and more. That trend is sustainable and has long-term tailwinds, confirming there are benefits for advisors that prioritize quality and sustainability in the food allocation conversation with clients.
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