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Why active, why Schroders?
When we’ve looked at previous system changes, they’ve had massive winners, but also losers we no longer hear about. We think you will see a lot of churn in the system over the next 30 years. Therefore, having an active approach will be essential as it allows us to try and pick the winners and not just follow a basket of companies based on market cap or their incumbent position.
The other part of active and why we think our investment proposition is a strong one is in two parts. The first is this value chain idea. There are very few funds out there looking at food and water together. We can’t see any that adopt this value chain approach. We are looking at companies all the way from agricultural input, to those generating products that are essential at the beginning of the system. This includes: agricultural equipment; companies that get food to markets; companies that provide sustainable packaging that allows the cyclical economy in agriculture to develop; and waste management companies.
Why active, why Schroders?
The second part of this investment opportunity is the cyclical one. When we look at catalysts in the market today, including the fears of inflation and the geopolitical events impacting Ukraine, they have a profound impact on the agricultural system. We have already seen food prices skyrocket with the input costs into boosting yield such as fertiliser and gas rising. Suddenly we see companies being much more incentivised to allocate that capital today.
We think this is a great investment opportunity. If we look back to previous system transitions – looking at the energy system in the 1970s as an example – when the market cap of companies is much smaller than the capital that needs to flow into them, this causes a natural catalyst. If we can pick the companies that are investing capital with a positive return, that feeds through to their income and that, in turn, catalysts their share price. It’s a two-part investment opportunity and the starting point for all of this is a space and a universe that is much cheaper from a valuation perspective than the wider market.
When we look at catalysts in the market today, including the geopolitical events impacting Ukraine, they have a profound impact on the agricultural system
When we look at the food and water systems today, they already are not fit for purpose
What are the problems facing food and water systems?
The problem we face in the food and water systems are two parts. The first is that when we look at the next 30 years, we need to produce a massive amount more food and water - a 70% increase over 2010 levels. To put that into context, that is producing more food in the next 30 years than we have over 5,000 years of human history.
The second problem is that when we look at the food and water systems today, they already are not fit for purpose. The amount of greenhouse gas emissions produced, the water intensity, the biodiversity loss, and the physical waste are starting to create negative feedback loops. This cycle makes it even harder to keep food production stationary, let alone fill the 70% food and water gap that we see emerging.
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watch the interview here
or read his views below
Over the next 30 years, food and water supplies not only need to become more sustainably sourced, but they also must reach unprecedented levels of scale.
Felix Odey, Portfolio Manager, Schroders, argues there is an opportunity for investors to harness the long-term structural and cyclical growth expected as systems change across the value chain to meet sustainability goals.
INTRODUCTION | Video interview | the challenge | the opportunity | our approach
The Opportunity
The Challenge
Video interview
INTRODUCTION
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#02
Three
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Schroders, on how investment can help overcome challenges facing food and water supply
INTRODUCTION | ASSET CLASS | THE FUND | portfolio snapshot
portfolio snapshot
THE FUND
ASSET CLASS
INTRODUCTION
Why is it an investment opportunity?
From an investment perspective, there are two key things we get excited about. The first is long-term structural growth. This system change includes the entire value chain. Whether it is looking at greenhouse gas emissions or the water intensity, the whole system is currently complicit in the unsustainable production process.
Overhauling the system is going to be a massive change. The Food and Agriculture Organisation and OECD estimate that over $30 trillion needs to flow into this space over the next 30 years. That involves more than 20 times the capital expenditure rate we are currently at. Ultimately, we see a long-term growth opportunity, with companies beginning to see better growth rates as capital gets allocated.
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Issued in May 2022 by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered in England, No. 4191730. Authorised and regulated by the Financial Conduct Authority.
The second part of this investment opportunity is the cyclical one. When we look at catalysts in the market today, including the fears of inflation and the geopolitical events impacting Ukraine, they have a profound impact on the agricultural system. We have already seen food prices skyrocket with the input costs into boosting yield such as fertiliser and gas rising. Suddenly we see companies being much more incentivised to allocate that capital today.
We think this is a great investment opportunity. If we look back to previous system transitions – looking at the energy system in the 1970s as an example – when the market cap of companies is much smaller than the capital that needs to flow into them, this causes a natural catalyst. If we can pick the companies that are investing capital with a positive return, that feeds through to their income and that, in turn, catalysts their share price. It’s a two-part investment opportunity and the starting point for all of this is a space and a universe that is much cheaper from a valuation perspective than the wider market.
Marketing material for professional clients only.
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall.
Schroders has expressed its own views and opinions in this material and these may change.
This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy. Nothing in this material should be construed as advice or a recommendation to buy or sell. Information herein is believed to be reliable but we do not warrant its completeness or accuracy.
Any data has been sourced by us and is provided without any warranties of any kind. It should be independently verified before further publication or use. Third party data is owned or licenced by the data provider and may not be reproduced, extracted or used for any other purpose without the data provider’s consent. Neither we, nor the data provider, will have any liability in connection with the third party data.
The material is not intended to provide, and should not be relied on for accounting, legal or tax advice. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. No responsibility can be accepted for error of fact or opinion.
Any references to securities, sectors, regions and/or countries are for illustrative purposes only.
Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at www.schroders.com/en/privacy-policy or on request should you not have access to this webpage.
For your security, communications may be recorded or monitored.
Issued in May 2022 by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered in England, No. 4191730. Authorised and regulated by the Financial Conduct Authority.
INTRODUCTION | Video interview | the challenge | the opportunity | our approach
our approach
The Opportunity
The Challenge
Video interview
INTRODUCTION
The second part is the sustainability approach. There are a couple of things I mean by this. Firstly, many funds divest from companies they see as being incumbents in the system. We think by investing in the incumbents and the pure-play technology providers, you can get a much more diversified portfolio. For instance, this could include investing in companies already in the fertiliser space but are beginning to move to green hydrogen as feedstock. Conversely, we could also invest in companies creating technologies that allow you to print grass. Those contrasting companies offer really interesting portfolio dynamics.
The second part of the sustainability approach is the engagement side. We think it is essential to be active and have a great platform to engage with these companies and drive change in the system. Ultimately, as an Article 9 fund, we look to solve societal issues. That is why engagement is essential given the starting point we are coming from in the food and water system.
There are very few funds out there looking at
food and water together
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Three
Minutes
With
When we’ve looked at previous system changes, they’ve had massive winners, but also losers we no longer hear about. We think you will see a lot of churn in the system over the next 30 years. Therefore, having an active approach will be essential as it allows us to try and pick the winners and not just follow a basket of companies based on market cap or their incumbent position.
The other part of active and why we think our investment proposition is a strong one is in two parts. The first is this value chain idea. There are very few funds out there looking at food and water together. We can’t see any that adopt this value chain approach. We are looking at companies all the way from agricultural input, to those generating products that are essential at the beginning of the system. This includes: agricultural equipment; companies that get food to markets; companies that provide sustainable packaging that allows the cyclical economy in agriculture to develop; and waste management companies.
When we look at catalysts in the market today, including the geopolitical events impacting Ukraine, they have a profound impact on the agricultural system