Specialty Coffee Index Thesis

(SCOF & SCOFESG)

In recent years, the specialty coffee market has experienced significant growth and increasing demand for high-quality, sustainably produced coffee. Farmersvaluefirst is committed to providing investors and coffee enthusiasts with a comprehensive overview of this dynamic market. With the introduction of the Specialty Coffee Index (SCOF) and the ESG Specialty Coffee Index (SCOFESG), we are presenting innovative indices that emphasize the importance of sustainability and ethical business practices.

Objective

The objective of these indices is to track the performance of companies significantly involved in the specialty coffee sector and to provide investors with diversified and balanced exposure that reduces the concentration risk typically associated with market capitalization weighting.

Market Analysis and Risks

For detailed analyses and risk assessments, we refer to our comprehensive market report: Market Report 2024: The Rise of the Specialty Coffee Market.

Selection Criteria

Market Capitalization

Companies must have a minimum market capitalization of 100 million USD to ensure liquidity and market presence.

Revenue from Specialty Coffee

Companies must derive a significant portion of their revenue from specialty coffee or related activities.

Rationale for Selection

Starbucks Corp. (SBUX)

Market leader with a strong global presence in the specialty coffee sector. Consistent commitment to sustainability and ethical sourcing.

Keurig Dr Pepper, Inc. (KDP)

A major player in single-serve systems, contributing to the specialty coffee experience at home and in the office.

The J. M. Smucker Co. (SJM)

Owner of several well-known coffee brands, including Dunkin’ and Folgers, with growing specialty coffee lines.

Other Holdings

The complete list of holdings and their respective rationales is available upon request.

Differences Between SCOF and SCOFESG

SCOF

Includes companies that meet the general selection criteria.

SCOFESG

Additionally includes companies that meet high Environmental, Social, and Governance (ESG) standards. These ESG criteria ensure that the index captures the growth potential of the specialty coffee sector while promoting responsible corporate behavior.

Weighting Methodology

Square Root Market Capitalization Weighting

The initial weights are based on the square root of the market capitalization of the companies represented in the index.

This method balances the influence of large companies while providing significant exposure to smaller, potentially faster-growing companies. It reduces the concentration risk typically associated with market capitalization weighting and allows for a more diversified and representative index.

Advantages of Square Root Market Capitalization Weighting

Balanced Exposure

Reduces the dominance of the largest companies and ensures that smaller, potentially high-growth companies have a significant impact on the index.

Diversification

Provides more diversified exposure to the specialty coffee sector and mitigates risks associated with the performance of individual companies.

Growth Potential

Allows the index to benefit from the dynamic growth of smaller companies while maintaining stability through larger, established companies.

Weighting Methodology SCOF

The weights in the SCOF are based on the square root of the market capitalization of the companies represented in the index.

Weighting Methodology SCOFESG

The ESG Specialty Coffee Index (SCOFESG) combines square root market capitalization weighting with an additional ESG component to reflect the specialty coffee market while considering sustainability criteria.

Modification by ESG Score

These weights are then adjusted by the inverse ESG score (1/ESG Rating) to reward companies with lower ESG risks.

Normalization of Combined Weights

The modified weights are then normalized so that the sum of the weights equals 100%.

Explanation of ESG Criteria

The ESG criteria are based on data and ratings from Sustainalytics, a leading provider of ESG ratings. These criteria include environmental, social, and governance factors that assess the risk and sustainability of companies.

Rebalancing

Frequency

The index is rebalanced quarterly on the third Friday of March, June, September, and December to reflect the latest market conditions and company performance.

Criteria for Adjustments

Companies can be added or removed based on changes in their market capitalization, revenue composition, or other significant factors.

Conclusion

The Specialty Coffee Index (SCOF) and the ESG Specialty Coffee Index (SCOFESG) offer unique and targeted ways to represent the specialty coffee market. By using the square root market capitalization weighting methodology and integrating ESG criteria, these indices achieve a balanced representation of the market that captures both stability and growth potential. Both indices are well-positioned to provide investors with a comprehensive overview of the growing specialty coffee market and the associated sustainable practices.

This thesis will be continuously updated and supplemented in line with the objectives of the indices.

For more information about our Specialty Coffee Index, please visit the following pages:

• The Specialty Coffee Index (SCOF)
• Market Report 2024: The Rise of the Specialty Coffee Market

• Press Release: Launch of the World’s First Specialty Coffee Index (SCOF)

For additional information, please feel free to contact us.

Contact