Ethical Investing: The first vegan ETF’s founder explains how she & her fund invest
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For this weeks’ Ethical Investing series Stockhead spoke with the creator of the world’s first vegan-based ETF, Claire Smith.
Personally she has been a vegan investor for several years. But Smith is CEO of Beyond Investing and will launch the first vegan ETF in New York on September 10.
Beyond currently runs two non-listed funds, one with listed equities and the other for private start ups. The former tracks its own index – the US Vegan Climate Index. Beyond aims to track the S&P 500 but removes stocks contrary to its values. Smaller cap stocks with ethical values replace them.
“The index is more about providing vegans, environmentalists, animal lovers with a broad-based market exposure that’s cruelty free,” Smith explained to Stockhead.
“To the extent a business model is employing those activities, if it’s involved to a material extent, we are removing them from the universe.
“We are attempting to find replacements by delving into the midcap space in order to then be able to buy plant-based companies, renewables when they’re in the mid caps and have some impact.”
It’s not just a case of investing in Beyond Meat and excluding abattoir-operators. The ETF will invest in companies that positively contribute to the planet.
“We know what we stand for. Our principle exclusions are products [using animal] testing, environmental damaging [stocks], plastics, defences removed and human rights violators,” Smith said.
“The environment is related to animals because as humans we’re very concerned about the damage to the environment, biodiversity and climate change – that’s affecting animals more than us.”
Using the example of pigs she said, “we don’t live in straw houses, animals don’t have the brick house to shelter in.”
Beyond Meat listed in late May and surged from $US25 ($36.89) to $US144. Since listing the stock has caught significant attention of non-vegan investors.
JP Morgan modelled a total addressable market for plant-based meat alternatives of $US100 billion in 15 years. That is 100 times larger than today’s market value.
“It is not a startup that can sell a lot of product but make no money, it is a legitimate manufacturer that in our view has a clear path to bottom line and cash flow success,” JP Morgan said.
Stockhead asked Smith specifically about Beyond Meat and she said it was in the index and in the ETF.
While this sector still only has one listed company, plenty of non-listed companies may follow. The most notable of these is Impossible Foods.
In Australia, cannabis stock Roots (ASX: ROO) announced it was entering this field just yesterday and the US players are selling their produce in Australia.
Smith also shared some private investments she had including one company making pepperoni out of jack fruit, and ice cream manufacturers.
Such products replicate meat from plant protein so there had been perceptions it may not taste good or have lower calories and protein.
Smith acknowledged businesses had to differentiate in this growing industry. She said such firms had to be “superior, sustainable and scalable”.
“We’re not just looking at vegans who’ve gotten used to inferior products,” she said. “Now products will [have to] attract the broader market: [non-vegans who may be] feeling you’re going to be deprived of things that you ate in the past.”
Smith said trust was also important.
“We see a high backlash against products appearing to have a long list of ingredients,” she said.
“If you look at a recipe, it has ingredients and if any are flavouring some may object. But I wouldn’t criticise them all, you have to look and see what these are.”
While there’s little consensus on what is ethical investing, one common principle is that animal testing is a no-go zone.
Many drugs and cosmetics start by testing on animals, particularly mice. The hope it’ll work in animals then presto, it’ll work in humans; but this rarely happens. Only 9.6 per cent of drugs make it from Phase I (inevitably having passed animal tests) to FDA-approval.
“The problem with animal testing is it kills animals,” Smith said.
“Even if it doesn’t, it doesn’t guarantee you’ll find out anything — a lot of animals are killed for no reason.”
According to Smith, alternatives to animal testing do exist. She pointed to one of her investments, US biotech startup Emulate, which manufactures chips that mimic human organs.
Stockhead has often asked interviewees in this series about their client base.
We have found ethical investors are more than just millennials. Older people who feel they want to leave a positive legacy can fall into this category.
“Any senior person, and I count myself as one, would want to leave the world in a better place or not feel that nature is being destroyed and there is not a good future for their descendants,” Smith said.
“And that’s a very great fear of mine and really why I’ve been focused on this 24/7 for the last two years since I left my previous company.
“I thought it was a matter of conscience – if they could accommodate that within themselves they were justified. I tend not to be the stereotypical vegan stuffing it down their throats.
“The thing that was a tipping point is the fact that the environmental impact and the climate impact became more evident to me through reports and research that I read in the early years [2009-10].
“At that point, I was not sure I could tolerate this.”
But Smith believes things are looking up.
“I think the ethics has a positive tailwind, it’s all part of a societal shift,” she said.