For many who enjoyed the sense of social impact from buying shares of Whole Foods Market, the company's acquisition by Amazon.com this year eliminated a great option for directly supporting the organic and natural foods movement.
If you're one of the many looking for new ideas in this space, an exchange-traded fund (ETF) launched last year allows investors to participate in companies that manufacture or facilitate the trade of both organic foods and personal care products. The Organics ETF (ORG), managed by Janus Henderson Investors, describes itself as follows:
The Organics ETF seeks exposure to companies globally that can capitalize on our increasing desire for naturally derived food and personal care items, including: companies which service, produce, distribute, market or sell organic food, beverage, cosmetics, supplements, or packaging.
The Organics ETF seeks to generally match the performance, before fees and expenses, of the Solactive Organics Index. Currently, the fund holds 25 companies spread across four continents. Fully 40% of the portfolio is divided equally between U.S.-based organics manufacturer and marketer Hain Celestial Group Inc. (NASDAQ: HAIN) and Danish biosciences company CHr Hansen Holding (CHYHY 1.81%).
Other significant positions include Whole Foods supplier United Natural Foods (NASDAQ: UNFI), natural and organic foods grocer Sprouts Farmers Market (NASDAQ: SFM), Dutch organic brand powerhouse Wessanen (NASDAQOTH: KJWNF), and natural soups and stocks specialist Ariake Japan Co (AKEJF).
Personal products manufactured with natural ingredients form a secondary focus for the fund. An example is L'Occitane International S.A. (LCCTF), a French cosmetics manufacturer that investors may already know from its retail store presence in the U.S.
The fund benchmarks its performance against the MSCI All Country World Index (AWCI). As of the Organics ETF's most recent monthly report on Nov. 30, 2017, its year-to-date return of 37% has far outpaced the AWCI return of 22% over the same period. Since inception June 8, 2016, the fund has posted a total cumulative return of nearly 33%.
The Organics ETF charges a reasonable expense ratio of 0.50%, and currently trades at a premium to net asset value of 0.67%, while carrying a distribution yield of 0.84%. As a fairly new fund, it has a relatively small asset base of $13.3 million.
Roughly half of the fund is invested in mid-capitalization stocks with market values between $1 billion and $5 billion. Large- and small-cap stocks comprise 20% and 30% of the remainder of the portfolio, respectively. Blended together, the average market cap of the fund's holdings weighs in at $4 billion.
The benefit of investing in global organic companies
In the U.S., investment opportunities in organic products have tended to center around organic grocers and their suppliers. As my colleague Brian Stoffel explains, this has often been a frustrating experience for shareholders, as price competition has eroded equity gains across a number of companies, especially over the last three years.
The Organic ETF's reach and diversity help insulate it from some of the volatility inherent in the U.S. organic foods market. For example, the fund's largest holding, CHr Hansen, has been in business since 1874, and provides food cultures and enzymes to the dairy industry. Ariake Japan Co. offers manufacturers of packaged soups in Asia and abroad a palette of natural stocks and flavorings, as consumers begin to seek healthier ingredients even from instant soups and noodles purchases.
Similarly, Wessanen, founded in 1765 and headquartered in Amsterdam, owns an array of niche organic products sold in several countries throughout Europe. An example is Bonneterre, a 50-year-old label that counts as one of the first organic brands ever sold in France.
CHr Hansen, Ariake, and Wessanen have in common relatively smooth, upward stock price advances over the last several years, in contrast to many U.S. peers. The fund's investment outside the U.S. doesn't mean that it won't continue to take stateside risk, however. The Organics ETF recently boosted its stake in Hain Celestial nearly fourfold, after it appears that the promising organics brand consolidator has finally moved beyond accounting travails that began last year.
If the fund's performance since inception is any indication, the blend of stable and often specialized international companies with higher-risk (and potentially higher-return) U.S. investments should produce credible returns over a long time horizon. And for socially conscious investors, simply learning about the Organic ETF's wide-ranging portfolio holdings provides the side benefit of an education on major global trends in the organic food and products industry.