📈 Are floating farms the future? | Thought Starters

• The US Federal Reserve held interest rates in the 5.25% - 5.5% range, after inflation in the US came in at 3.1% for the 12 months to November 2023. Some good news on inflation and interest rates heading into Christmas.
  

• Australian retail giant Chemist Warehouse will list on the ASX after a merger was announced with ASX-listed Sigma Healthcare (ASX: SIG)
  

• In a widely-watched antitrust lawsuit, Google lost to Epic Games in a case challenging the practices of Google’s Play Store on the Android Operating System
  

• In 2021, Zoe Foster-Blake sold 50.1% of her skincare company Go-To Skincare for $89 million. Two years later she has bought that stake back for just $8.5 million

Cows on Rotterdam harbour, seedlings on rafts in India; are floating farms the future?

Visitors to the Dutch city of Rotterdam may be surprised to see a number of cows on the top of a three-tiered structure floating in the harbour. These cows are fed by hay delivered on a conveyer belt, are automatically milked by a machine and keep out of the way of a robot that mops up their manure. The floating farm, which has been in operation since 2019, sells milk and cheese at a nearby shop.

This is just one example of a new trend in agriculture - farming on water. From cattle barges in the Netherlands, to floating lettuce farms in Mexico and crops on bamboo rafts in India, this article takes a look at examples of this new trend from around the world.

In some instances, there are quite specific reasons for the floating farm. For example, in India and Bangladesh, floating farms have been useful in keeping seedlings above monsoon flood waters. Then, there are some more general reasons for these trials of floating farms. A key one being that as cities sprawl, farms have ended up further and further from population centres. These floating farms offer a more proximate source of food.

The obvious question is scale. There doesn’t appear to be much hope of being able to scale floating farms to a meaningful size. But as these experiments continue they are an interesting new trend in agriculture. Who knows where they will lead.

Nintendo, revisited

One company that enjoyed a lot of buzz in the covid years was Nintendo. Many investors looked at what Disney had done with their catalogue of intellectual property (IP) - turned it into movies, TV shows, theme park rides, live shows, cruises and so much merchandise - and wondered what other companies had similar catalogues of IP. With Pokemon, Mario, Link and Donkey Kong leading a deep catalogue of IP, Nintendo became a favourite of investors.

At the same time investors saw a lot of additional growth drivers in Nintendo’s hardware business. The IP of Disney and the gaming hardware of Sony - what was not to like?

The best example of a thesis on Nintendo from the covid years is this 122-page monster from Crossroads Capital.

A couple of years later, this article takes a look back at the thesis and how it has played out.

A lot has gone right for Nintendo. On an IP-side, headlined by the billion dollar success of the Mario movie. At the same time, the latest Zelda game sold just shy of 20 million units in a 3 month period.

On the hardware side, the Nintendo Switch continues to sell, now surpassing 132 million units sold. This has helped push up Nintendo Switch’s Annual Playing Users to well beyond 100 million people.

But that isn’t to say there hasn’t been challenges. Nintendo has a mixed history with consoles, for example the Wii U selling only 13% of the Wii and leaving a particular black mark on the company’s memory. The Wii U failure saw Nintendo’s share price fall 85% and has made investors wary ever since. As Nintendo prepares for their next hardware investment cycle and to announce their successor to the Nintendo Switch (rumoured to be in the second half of 2024), investors around the world will be watching. 

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First Quadruple Leveraged S&P 500 ETN Proposed

On stock exchanges around the world, many investors that are willing to take on additional risk in search of additional returns turn to leveraged ETFs. These investment products offer to give returns (or losses) of up to 3x the underlying index. So if the ASX200 goes up 2%, then a 3x leveraged ETF would go up 6%. Similarly, if the ASX200 falls 2%, then the ETF would fall 6%.

It seems regulators around the world had a consensus that 3x leveraged was the most amount of leverage that would be allowed.

Now that may change. The first 4x leveraged ETF has been proposed by MAX ETNs. The ETF would track the S&P 500 (an index of the 500 largest public companies in the US) and would have the ticker XXXX.

The structure of the product is slightly different to get around a SEC rule that allows only 3x leveraged ETFs. Which only adds to our questions around this product.

As investors, you have to ask what is the purpose of this ETF. And importantly, are they just playing to investors base instincts to want to get rich quick.

Most importantly, you need to think critically about whether you’ll actually get better returns from a leveraged ETF. Over on Equity Mates Investing Podcast, we had a look at leveraged ETFs and found that over the past 5 years you would’ve actually been better off investing in a non-leveraged ASX 200 ETF rather than a 3x leveraged ASX 200 ETF. And not just a little bit better off. You would’ve been about 15 percentage points better off.

So as you see new products like this come to market, just be wary. Just because you can invest in a 4x leveraged ETF doesn’t mean you should. And we have a similar message to ETF product issuers, just because you can find a way around the rules and make a 4x leveraged ETF doesn’t mean you should either.