Agro Sector Ideas

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>>> Investing in the future of farming

Advanced technology could become a necessity on the farm—and an investment opportunity.


Fidelity Investments

by STEVE CALHOUN

05/26/2021


https://www.fidelity.com/learning-center/trading-investing/Steve-Calhoun-farming


The world’s population is forecast to increase by 2 billion over the next 30 years, according to the United Nations Population Division. But the amount of land available to grow food for those extra billions isn’t going to expand.

That means farmers must become even more productive, which is why Fidelity’s Steven Calhoun sees investment opportunities in technologies designed to boost crop yields and make food production more efficient.

“We’re going to need to optimize fertilizers, seeds, farm machinery, transportation solutions, and even advances in biotechnology in coming years,” says Calhoun, who co-manages Fidelity® Agricultural Productivity Fund (FARMX). “And this recently introduced fund includes investment in the companies we think are innovating for the future and driving productivity gains to help more effectively feed the world.”

In co-managing this thematic fund since its launch in April 2020, Calhoun and David Wagner have taken a bottom-up approach that focuses on agricultural companies with improving free-cash-flow yields and returns on invested capital, leveraging the work of Fidelity’s research team to choose stocks.

Calhoun says most of the stocks in the fund contribute to a global food-production system that’s resistant to supply disruptions and climate change and is sustainable from a business and environmental perspective. Many also offer more selection and healthy choices for consumers.

The fund has invested in several large, familiar agriculture companies, such as equipment maker Deere (DE), food processing company Archer-Daniels-Midland (ADM), and fertilizer maker Nutrien (NTR)—all top-10 positions as of March 31.

Others aren’t household names. Among them is Genus (GENSF), a UK-based biotech company that helps famers breed more disease-resistant pigs and cattle so they can produce high-quality meat and milk efficiently and sustainably.

The fund also owned Darling Ingredients (DAR), a play on demand for biodiesel fuel. Calhoun says demand for biodiesel is rising, especially in Europe, as government mandates encourage its consumption in place of crude-based diesel to reduce carbon emissions.

Lastly, Calhoun noted Sakata Seed, a longtime global provider of vegetable seeds and cuttings that reinvests its profits in research to develop new produce varieties and disease-resistant crops.

“A lot of innovation and creativity will be needed to support food production in the coming decades, and the way I see it, the agriculture companies held in the fund are planning for the future today,” Calhoun says.

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