Should you join the vegan gold rush?

Veganism has gone mainstream and, following the explosive IPO of Beyond Meat earlier this year, there’s a rush to invest in herbivorous food. But is it a bubble?

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  1. Garry White

Just look at high street baker Greggs. The introduction of its vegan sausage roll at the start of the year helped drive a 58pc increase in first-half profits, generating reams of invaluable media coverage in the process. Partly as a result, its shares are up an impressive 67pc so far in 2019. Over the next few years there will be many more investment opportunities coming along but, as in all thematic investing, caution is required.

It is clear that the rise of the plant eaters is not a fad. There are claims that a quarter of American millennials say they are vegans or vegetarians. Many more are flexitarian – eating meat-free meals regularly. This is being driven both by health and environmental concerns. A thirty-year study released this week showed that people who eat a mostly plant-based diet may be less likely to die from heart disease than those who consume lots of meat and refined carbohydrates. There are environmental issues to consider too. Reducing emissions from sectors such as agriculture and food will be essential to keeping global warming well below 2 degrees Celsius, according to a report released last week by the UN Intergovernmental Panel on Climate Change. Its conclusion: eat less meat.

An undoubted opportunity

The vegan “meat” market is expected to be worth a staggering $85bn by 2030, according to investment bank UBS. Last week it was confirmed that a new exchange-traded fund (ETF) will be launched in the US during September under the ticker symbol VEGAN. The fund is not currently investing in vegan food producers, but aims to avoid companies whose activities directly contribute to animal exploitation or environmental damage. This means the fund, called the Vegan Climate ETF, will be an odd beast. Its largest holdings will include companies such as Microsoft, Apple, Facebook and Mastercard. This means the ETF will look pretty similar to other, lower-cost alternatives.

The make-up of this fund is therefore a clear demonstration of why it is important that investors seeking an “ethical” investment really do their homework. The industry is continuing to develop environmental, social and governance (ESG) products, but it is difficult for an individual to outsource their own personal morals to a fund manager, as every individual has a different point of view. For example, although Facebook is included in the vegan ETF because it meets its criteria, the company’s shares were thrown out of the S&P ESG Index in June because of weak oversight in the sale of its user data to advertisers.

Lack of product

It is also surprising that companies such as Beyond Meat are not included. The plant-based burger group has been one of the IPO successes of the year, defying the expectations of management and advisors alike. The shares are up around 600pc since they listed in May, although they have moved off highs after insiders cashed in some of their shares following the leap in valuation. The main problem is that the equity now appear to be pricing in perfection. The market value of the company is a little under £10bn, yet in its last quarter the group reported just $67m of sales and posted a $6.6m loss. This is after a decade in business.

There is also a lot of competition heading its way. Impossible Foods’ vegan burger cleared the last regulatory hurdle it faced before rolling out in US grocery stores last month. Burger King also announced that its trial of the Impossible burger was going nationwide and it expected that that company will IPO later this year or next. Impossible Foods says its burgers use 87% less water and emit 89% fewer greenhouse gases than beef from cows. Plant-free burgers are also being developed by other companies that have seen the success of Beyond Meat on the stock market.

There is also a growing backlash against the products too. Critics argue that the burgers are actually unhealthy because they are highly-processed and such foods are linked to the development of diseases such as cancer. They also have a lot of calories and salt. All of this means there could be significant risk ahead for investors in the group despite there being few “pure-play” vegan investment opportunities out there. Nevertheless, the search for alternative sources of protein will continue but, as in any gold rush, it might be wise not to rush in with the herd.

A version of this article appeared in Friday’s Daily Telegraph.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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