3 Food ETFs To Load Your Plate With
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Food ETFs can be hard to find, but these funds fit the bill and are suitable for conservative investors
Although it’s true to that people have to eat, that notion doesn’t always make for the most valid investment thesis. Still, the Consumer Staples Select Sector SPDR (NYSEARCA:XLP), the largest exchange traded fund (ETF) dedicated to that sector, is higher by nearly 21% year-to-date.
Traditional consumer staples ETFs like XLP are diverse in the ways of this sector. These funds are not dedicated food ETFs. Rather, they combine exposure to food and beverage stocks, such as Coca-Cola (NYSE:KO) along with consumer products giants like Procter & Gamble (NYSE:PG).
Industry-level diversity usually works for investors, but when it comes to food ETFs, the hunt looks a little bit like the one for restaurant ETFs. The need for nourishment and demand for dining would seem to imply that there are plenty of related funds, but the opposite is actually true.
However, there are few credible, solid ideas for investors to put some grub on the table and in the bank with the following food ETFs.
Invesco Dynamic Food & Beverage ETF (PBJ)
Expense ratio: 0.63%
The Invesco Dynamic Food & Beverage ETF (NYSEARCA:PBJ) is one of the oldest dedicated food and beverage ETFs having debuted over 14 years ago. PBJ also epitomizes the search for food ETFs in that it includes an “and.” That’s usually the case as fund issuers figure it’s more efficient to mix food and drink together under the umbrella of single ETF.
PBJ follows the Dynamic Food & Beverage Intellidex Index, which is a different animal than the benchmarks used by many prosaic consumer staples ETFs. This food ETF’s index “is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action, and value,” according to Invesco.
While PBJ holds food and beverage basics such as Coca-Cola and PepsiCo (NASDAQ:PEP), the fund allocates nearly a quarter of its weight to consumer discretionary stocks, including McDonald’s (NYSE:MCD) and Starbucks (NASDAQ:SBUX). That gives PBJ the ability, in the right consumer environment, to potentially outperform traditional staples ETFs.
Bottom line: this food ETF offers investors a bit more spice than they’ll find with the XLP’s of the world.
First Trust Nasdaq Food & Beverage ETF (FTXG)
Expense ratio: 0.60%
The First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG) represents another smart beta approach to food ETFs. This First Trust Food ETF, which is just over three years old, follows the Nasdaq US Smart Food & Beverage Index.
That index pulls 30 stocks from a broader Nasdaq benchmark and scores those names based on trailing 12-month volatility, value as measured by price-to-cash flow and growth using a combination of three-, six-, nine- and 12-month price appreciation.
As far as food ETFs go, FTXG is one of the more pure names out there as it allocates almost 80% of its weight to stocks classified as food product names, according to issuer data.
For as unique as its weighting methodology is, FTXG’s 28-stock roster looks traditional with names such as Pepsi, Kellogg (NYSE:K), General Mills (NYSE:GIS) and Coca-Cola, among others.
The Organics ETF (ORG)
Expense ratio: 0.35%
Often overlooked in the food ETF conversation, the Organics ETF (NASDAQ:ORG), as its name implies, is a play on healthy eating trends. ORG tracks the Solactive Organics Index.
“ORG includes global companies that capitalize on the growth in naturally-derived food and personal care items, such as companies that service, produce, distribute, market or sell organic food, beverage, cosmetics, supplements, or packaging,” according to ETF Trends.
While over 86% of ORG’s weight is allocated to food makers and retailers, giving this fund serious food ETF credibility, there’s some concentration risk to consider as its top three holdings combine for nearly a third of the fund’s weight.
In its favor, ORG is the least expensive of the food ETFs highlighted here.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
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Category: ETFs
