Two new funds to invest in the next big disruptive industries

Plant-nased burger company Beyond Meat is FOOD's largest holding

(Image credit: Beyond Meat burger ©)

You don’t have to be a vegan to think that if we are to feed as many as nine billion people with high protein foods in the next few decades, then we might need some alternatives to traditional meat products. There will always be a market for high quality, intelligently-farmed natural meat products, but they are likely to be more expensive. The good news is that new food technologies are emerging and becoming profitable. Not all of the new products are perfect, but they are more “sustainable”.

Two disruptive sectors

Food is just one sector where the next “disruptive” technologies are already building momentum. I suspect another opportunity lies in next-generation educational technology (or “edtech”). Even before the Covid-19 outbreak, many were questioning the value of traditional educational delivery, and while online education hasn’t quite taken off to the extent everyone expected it to, change is afoot, especially in Asia.

These big trends are the focus of two new exchange-traded funds (ETFs) from UK-based issuer Rize. Both Rize Sustainable Future of Food UCITS ETF (LSE: FOOD) and Rize Education Tech and Digital Learning UCITS ETF (LSE: LERN) launched a few weeks ago. To compile the indices, Rize commissioned specialist researchers in each field to build a filtered shortlist of firms that meet various criteria. In the case of food – which is themed around a sustainable, “circular” economy – it’s US-based group Tematica Research. For edtech, it’s Australian firm HolonIQ, which describes itself as “the leading global education market intelligence firm in the world”. The themed indices are then operated by specialist index provider Foxberry.

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More than burgers

I suspect FOOD will prove more popular in the short term, not least because its largest holding (though less than 4% of the index) is plant-based burger company Beyond Meat. The ETF’s definition of food disruption is deliberately broad – there are about 160 stocks in the universe, with sub-categories including agriscience, digital and precision farming, organic and plant-based proteins, plus food and ingredient testing. For my money the most interesting prospects lie in aquaculture and precision-based farming. Urban farms are sprouting up everywhere – the fresh salad outputs of these industrial farms are expensive, but the circular technology used to produce them is hugely efficient. The ETF also includes established, highly-profitable businesses in the food flavouring market, many of which are trying to find chemicals to mimic “natural” flavourings. Sustainable packaging is also a big component. Notably, the index is weighted using a sustainability score, rather than market value.

The LERN ETF, focusing on digital and lifelong learning technologies will be a slower burn I suspect. However, it has a cohort of very profitable businesses. The edtech market is now exploding in size and HolonIQ reckons there’s more growth ahead as automation forces huge numbers of people to re-skill. That said, the K12 market – schools to you and me – is still the biggest sub-sector of this market. Related businesses include Chegg, which runs direct-to student online learning support, homework help and tutoring services; 2U, which partners with universities to build, deliver, and support online degree programmes; and, IDP Education, an international education platform and English language test provider. Chinese stocks represent 35% of the index exposure, which speaks volumes as to where the growth potential lies.

Both ETFs have a growth stock, mid-to-smaller cap bias which could make them very volatile. But if you’re looking for a left-field basket of tomorrow’s tech, they could be useful.

David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire.
He writes his own widely read Adventurous Investor SubStack newsletter at davidstevenson.substack.com

David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit www.altfi.com as well as www.etfstream.com in the asset management space.

Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business.

David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust.

In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.