In the novel coronavirus environment, eating is of course, still essential. But how consumers and diners access food is changing a bit, putting a spotlight on food ETFs and related exchange traded funds.
Traditionally, the food investment thesis is centered around two sectors: consumer staples and consumer discretionary. The former is home to food manufacturers, such as General Mills (GIS) and Kellogg (K), as well as retailers, including Costco (COST) and Walmart (WMT).
The intersection of consumer cyclical stocks and food names often involves restaurants, including familiar fare such as McDonald’s (MCD) and Starbucks (SBUX).
One element to the food ETF search that’s arguably surprising is that there’s a dearth of dedicated food ETFs on the market. With that in mind, the following group of food ETFs may contain some surprising, though credible ideas.
The Invesco Dynamic Food & Beverage ETF (PBJ) recently turned 15 years old, marking a lengthy run as the oldest dedicated food ETF. Investing in food and beverage stocks is often seen as a low volatility play, but PBJ brings some spice to the table with a unique weighting methodology that emphasizes price momentum, earnings momentum, quality, management action, and value.
Enhancing PBJ’s appeal is that it does an admirable job of mixing consumer staples and cyclical names while providing broad exposure to both growth and value stocks across the large-, mid-, and small-cap segments. About 20% of the fund’s holdings are classified as growth names, 19% are blend stocks, and the remainder are value stocks.
PBJ is home to dividend-paying food names such as PepsiCo (PEP) and General Mills, as well as growthier stocks, like Chipotle Mexican Grill (CMG) and Wingstop (WING) – both of which are leveraging delivery and takeout capabilities to shine during the pandemic.
Invesco Dynamic Food & Beverage ETF (PBJ)
First Trust Nasdaq Food & Beverage ETF (FTXG)
Invesco Dynamic Leisure and Entertainment ETF (PEJ)
Fidelity MSCI Consumer Staples ETF (FSTA)
Invesco S&P SmallCap Consumer Staples ETF (PSCC)
VanEck Vectors Agribusiness ETF (MOO)
Invesco DB Agriculture Fund (DBA)
Synchrony Financial (SYF)
Citizens Financial (CFG)
Hartford Financial (HIG)
Intercontinental Exchange (ICE)
Expense ratio: 0.60% per year
Most recently, banks were pummeled in the wake of the Federal Reserve placing limits on dividends and share buybacks at the nation's biggest banks. However, that doesn't mean all lenders are down for the count. Similarly, credit-fueled consumer spending remains lively. And it's not like every property & casualty insurer is crying in its beer.
To get a sense of where the bargains might lie, we surveyed the S&P 500 for financial-sector stocks with some of the strongest analyst ratings on the Street, according to S&P Capital IQ.
Here's how it works: S&P Capital IQ surveys analysts' stock calls and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Any score lower than 2.5 means that analysts, on average, rate the stock as a Buy. Scores of 1.5 and below mean the stock is a Strong Buy. Either way, the closer a stock's score gets to 1.0, the more bullish analysts are about its prospects.
After sorting through the S&P 500, we found stocks ranging from an asset manager to a regional bank to a credit-card issuer. Read on as we look at five of the top-rated financial stocks to buy in these turbulent times.
Expense ratio: 0.63% per year, or $63 on a $10,000 investment
Like PBK, the First Trust Nasdaq Food & Beverage ETF (FTXG) eschews cap-weighting in favor of a multi-factor approach. In the case of this food ETF, components are weighted by volatility traits, value, and growth. Value is defined as cash flow to price and growth being price appreciation over three, six, nine and 12 months.
The First Trust differs from its Invesco rival in that nearly all of its 30 holdings are classified as consumer staples stocks.
That doesn’t mean FTXG is boring. With ConAgra Brands (CAG), Kellog, Beyond Meat (BYND), and Tyson Foods (TSN) combining for about 15% of the fund’s roster, FTXG is a fine avenue for investors looking for exposure to vegan and alternative meat ideas.
First Trust Nasdaq Food & Beverage ETF
Expense ratio: 0.63% per year
The Invesco Dynamic Leisure and Entertainment ETF (PEJ) adheres to a methodology that’s the same as its aforementioned stablemate, PBJ. The big difference between the pair is that PEJ isn’t close to being a dedicated food or restaurant ETF.
In fact, over half its weight is allocated to communication services stocks. That said, PEJ’s underlying index is dynamic in nature and its sectors can shift over time.
Additionally, PEJ does have credibility as a food fund. Both of its consumer staples holdings are food producers. Of its 11 consumer discretionary positions, eight are fast-casual or fast food companies, including Chipotle and Wingstop.
Invesco Dynamic Leisure and Entertainment ETF
Invesco Dynamic Food & Beverage ETF
Expense ratio: 0.084% per year
The Fidelity MSCI Consumer Staples ETF (FSTA) is a basic, cap-weighted consumer staples fund, featuring sizable allocations to Coca-Cola Company (KO), PepsiCo, Walmart, and Costco, just to name a few.
As a broad staples ETF, FSTA also provides exposure to names such as Procter & Gamble (PG) and Clorox (CLX), which are bid higher this year as shoppers stockpile hand soaps, cleansers, hand sanitizers, toilet paper, and other household necessities.
One obvious perk of FSTA is that the staples sector is known for steadily rising dividends and above-average yields. The Fidelity fund yields 2.72%. Another benefit: FSTA, like the other Fidelity sector ETFs, is the cheapest ETF in its category.
Fidelity MSCI Consumer Staples ETF
Expense ratio: 0.29% per year
The staples sector is often considered heavy on large caps, but the Invesco S&P SmallCap Consumer Staples ETF (PSCC) provides investors with an avenue for accessing a normally docile sector with some of the growth benefits associated with smaller stocks.
Due to the dearth of small caps in this sector, PSCC has a concentrated lineup of just 20 components, but about two-thirds of that group are classified as food and beverage names.
Invesco S&P SmallCap Consumer Staples ETF
Past performance isn’t a guarantee of future returns, but PSCC has some compelling history on its side. Over the past three years, the staples fund not only outperformed the Russell 2000 (.RUT) and S&P SmallCap 600 indexes, it did so while being noticeably less volatile than those two widely followed baskets of small-cap equities.
PSCC is also superior on a yield basis with a dividend yield of 1.85%, which is well above the comparable metric on the Russell 2000.
Expense ratio: 0.56% per year
The VanEck Vectors Agribusiness ETF (MOO) isn’t a food ETF in the purest sense of the term, but it’s very much part of the food ecosystem and is one of the most sector-diverse funds highlighted here.
MOO components included firms engaged in “agri-chemicals, animal health and fertilizers, seeds and traits, from farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations and trading of agricultural products,” according to VanEck.
With a roster including Deere & Company (DE), Archer-Daniels-Midland (ADM), and Tyson, among others, MOO has plenty of credibility as “farm to table” ETF.
Adding to the allure of MOO in the current climate is its 56.1% combined weight to the consumer staples and healthcare sectors, two defensive, quality groups that held up well amid the Covid-19 market turmoil earlier this year.
VanEck Vectors Agribusiness ETF
Expense ratio: 0.89% per year
For the daring, the Invesco DB Agriculture Fund (DBA) is an ideal though not dedicated food ETF, and one that gets right to the heart of the food production cycle. DBA currently features exposure to 10 agriculture commodities with a small allocation to cotton being the non-food play here.
Broadly speaking, commodities are a volatile asset class, but that turbulence can be particularly acute with soft commodities because markets for the likes of corn, soybean, and wheat aren’t as liquid as, say, gold or oil. Data indicate soft commodities aren’t the best long-term investments, meaning investors considering DBA probably shouldn’t “marry” it.
In the 2012 study “A Reappraisal of Investing in Commodity Futures,” Scott Irwin and Dwight Sanders confirm as much. And their 2020 update doesn’t feature better news.
“Irwin and Sanders concluded that buying and holding long commodity futures didn’t earn money over the long run. Their 2020 update goes further: holding passive long commodity positions actually loses money in the long term because there are transactional and financing costs to futures positions,” according to The Western Producer.
Invesco DB Agriculture Fund