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Edited in response to comments.

How could I isolate a bet on veganism?

(Assume that most of my wealth is already invested passively in diversified index funds and that for alpha with a different percentage I want to express a well-researched view that is not based in idealism or a whim.)

"US Vegan Climate Index" exists, but this is mainly just a "US Large Cap Index" (which includes Apple, Microsoft, Facebook, AT&T, etc) minus certain companies that were found to be "engaged in animal exploitation, defense, human rights abuses, fossil fuels extraction and energy production, and other environmentally damaging activities."

What I'm envisioning for the vegan hedge would be to:

  • Buy (go "long" on) a diversified basket of companies that are likely to appreciate in value as the vegan movement thrives

  • "Sell short" a basket of companies that are irresponsible (e.g. abusive of animals)

This way, the isolated "bet" of the fund would just be that veganism thrives.

(I don't want its positions to have exposure to the performance of the general US stock market since I already have index funds for that.)

It would aim to minimize risk exposure such that its performance would be a reflection only of "how well are vegan assets doing compared to non-vegan assets" rather than movements in beta markets as a whole. (If the basket of vegan assets decreases in value, it STILL makes money as long as non-vegan assets decreased in value even MORE.)

The two main challenges I see are:

  • How to identify which assets to include and exclude (although maybe I could just use the list from US Vegan Climate Index and create the diff)

  • What amounts of each asset to buy. Base it on market cap or what?

Where could I go to get help with this?

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    Investing based on personal beliefs is as you describe it - a bet. You would probably be better off starting a vegan based company than trying to speculate. – A.K. Aug 15 '18 at 0:57
  • @A.K. I agree that it's a bet and that passive diversified long-term investing is the safest strategy. E.g. All Weather (seekingalpha.com/article/…). So I'm not talking about putting my life savings into some vegan strategy. Just a percentage. I'm curious about how to do it. – Ryan Aug 15 '18 at 1:20
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    "Minimises risk exposure" I think you have very little grasp of 'risk'. Your strategy aims to capture pure alpha of a niche small cap basket of companies rejecting all beta as being evil. I can't imagine a higher volatility strategy! – Aron Aug 15 '18 at 7:50
  • The problem isn't volatility. Because of the long/short aspect, it will be reduced. The defect is the portfolio construct. There's no edge. – Bob Baerker Aug 15 '18 at 11:40
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    I would agree. Startring a hedge fund advice definitely is not personal finance and money area - this is something in the professional field and freaking complex. US and EU (and somehow I know - I have a person actually checking requirements for a EU public fund). – TomTom Aug 15 '18 at 13:44
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Sorry to sound snarky and harsh but this idea just isn't realistic.

Why not buy currencies of democratic countries and short those of repressive regimes? Or buy companies that make toys and short those that make alcoholic beverages? Why? For the same reason that you don't "buy vegan companies and short companies that were found to be engaged in animal exploitation, defense, human rights abuses, fossil fuels extraction and energy production, and other environmentally damaging activities." Investing based on wishful social policy has no edge. Or for that matter, any basis in sound investing. People who bought shares when they were young in arms manufacturers or oil companies or chemical companies that have polluted are now living fat in retirement based on the compound earnings and growth of decades of profitability by such companies.

It's nice that you worked for Ray Dalio at Bridgewater hedge fund but I don't think that you picked up anything useful for hedging. When Pairs Trading (the basic component of such hedging), you have to have a fundamental financial reason for why your long stocks should appreciate more than your short stocks lose in an up market or lose less in a down market than the short positions gain. It could be company financials or Value Line 5's versus 1's or something as simple as an expectation of reversion to the mean but definitely not "I like vegetables." In addition, shorting has other nuanced issues which I won't dive into.

If you have no expertise nor any experience with this as well as no track record, the idea of creating "a real fund that is available to investors" other than yourself is preposterous. No serious investors will pony up big bucks until you have an successful audited track record over an extended period of time.

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    This is not a whimsical position based on "wishful social policy". So, if you could think about my question agnostic of your own views about veganism and were to instead assume that I had well-researched financial reasons for wanting to create this position, I wonder what helpful advice you might have. (I don't know why you'd assume that "I like vegetables" would be my reason for wanting to short non-vegan assets.) Thanks for your response. – Ryan Aug 15 '18 at 12:59
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    I have no opinion whatsoever on Veganism. If that lifestyle makes you happy, go for it. My entire response is based on my awareness of the financial markets. I'll repeat what I said in my answer. With no expertise nor any experience with this as well as no track record, the idea of creating "a real fund that is available to investors" other than yourself is preposterous. No serious investors will pony up big bucks until you have an successful audited track record over an extended period of time. That's numbers not vegetables. – Bob Baerker Aug 15 '18 at 13:35
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    There is also a cost thing. I remember soemone saying "the first 100 million AUM only pay for costs". Public fund, US means following a crapton regulations. Which means cost. So, it is not only hard to get money, you need millions to actually fund the starting period. – TomTom Aug 15 '18 at 13:45
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I'm surprised at the extent to which some of these answers are making assumptions about OP's motivations in asking this question and that he/she must personally be vegan and want to use this "fund" as a vector for impressing this opinion upon the world. I see zero evidence for this in OP's post.

For all we know, OP could be an enthusiastic meat-eater who has 5 big macs for breakfast every day - but simply believes that products and companies which cater to vegan diets are undervalued by the market, that most investors underestimate how fast the vegan market will grow, and that there is an opportunity to profit off of this mispricing. That doesn't seem terribly unreasonable, or different from any other belief about whether a certain sector is under or over-valued.

I have zero understanding of hedging, risk, or the tactical steps of actually starting a fund so I won't comment on those, but I will offer a suggestion to OP on how to frame the problem of finding companies to put in the basket. How does becoming vegan change a person's consumption habits, and which companies stand to gain/lose from this?

As someone who turned vegetarian a while back myself, my consumption changes fell into two categories: 1) Things that I could no longer buy (i.e. meat; in the case of vegans we could extend to items like leather shoes and handbags, or ice cream) and 2) Things that I cannot stop buying but now need a vegetarian alternative to (i.e. I cannot stop eating protein, so I need a company which produces substitutes such as tofu or seitan). Sounds like your goal would be to short companies that produce 1) and invest in companies that produce or facilitate the selling of 2). From experience I can say that many of the companies in 2) aren't publicly traded because they are small mom-and-pop artisans or local co-ops, so that's also worth thinking about.

I would say in this case that a substantial understanding of how becoming vegan changes purchasing is pretty essential to solving your problem, and that it might be difficult to correctly frame this problem if you aren't observing the purchase changes in real individuals. So for ideas, I would speak to actual vegans (or be one for a while), read the blogs/social media accounts that influence their purchasing decisions, and then look for concrete financial data on the company names that arise to back up your decisions.

  • Thanks. Yes, I've been hearing from people that a big challenge is that most of the companies / assets (so far) that currently stand to gain the most are ones that aren't publicly traded. So the whole hope of being able to place a broad, diversified bet on this trend in general and isolate the alpha (rather than take the old-school stock-picking approach of simply going long on just a small number of veganish companies) is fading. – Ryan Aug 17 '18 at 13:09
  • Your answer is well framed but it misses the mark because the issue here is not the lifestyle of Vegans or the availability of products for them. The core issue here is hedging. It's much easier with highly correlated assets because you're trading the spread but in this question's context, the dilemma is how to discern which companies will out perfrom financially (share price) and those which will under perform. The latter group will be the ones that will be shorted. The rest is somewhat mechanical, eg. directional bias, hedge ratio, and shifting that ratio if market trend changes. – Bob Baerker Sep 3 '18 at 14:25
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It is not the way to go, because plenty of companies do not separate their agricultural and livestock departments, they have it together under "agricultural", because for example they sell livestock and buy wheat.

If you truly believe into vegetarian future, you "short livestock + long wheat". But it is what many companies do essentially. Also this is NOT investing, because there is opposite position of that (futures market always has opposite positions and both buyer and seller are happy, because they go onto delivery mode).

About "hedge funds". Hedge funds do not employ thematic investing (what you describe). Thematic investing is done by "aggregators", i.e. index funds and thematic funds. Index funds do not short unless they build their entire idea on shorting. So it is not index fund you looking for.

What you could do in reality (not this stupid thing but something which could actually work) is simply buy agriculture and balance it with some futures positions to fit your exact needs. What you should have for that is futures account which charge about 50$/mo and minimum of 100K. Risk consideration: high alert. With zero sum futures position you always have high risk. But it won't hurt you further because you already decided you want it high.

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