Seasoned investors often employ myriad strategies to optimize returns. One such tactic is the sector rotation strategy, wherein investors attempt to time their exposures to different sectors based on the anticipated phases of the business cycle.
For instance, during an expansion phase, one might lean toward sectors known to thrive during economic growth, such as the technology or consumer discretionary sectors. Conversely, in a contraction or recession phase, there’s a tilt toward more defensive sectors like utilities or health care, as these tend to be less sensitive to economic fluctuations.
Investors desiring a more granular approach can drill down even farther. Rather than just allocating funds to a sector as a whole, they target specific industries within those sectors. For example, defensive-minded investors may see value in zooming into the food and beverage industry within the consumer staples sector.
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The rationale? Food and beverages are essential commodities, and demand for them remains relatively consistent, irrespective of economic conditions. This makes the industry a potential safe harbor during turbulent times.
“Food and beverage companies tend to exhibit steady streams of revenue, stable and predictable cash flows and attractive dividend policies, which can be particularly appealing to investors seeking resilience in challenging economic conditions,” says Rene Reyna, head of thematic and specialty product strategy at Invesco. “These attributes helped the food and beverage industry weather the storm in 2022 as inflationary pressures rattled the broader economy.”
Beyond short-term cycles, food-themed ETFs can also help investors tap into long-term trends. “Interest in food-related ETFs is growing amongst investors at the same time as a rising global population increases demand for food,” says Ibrahim Hussein, head of ETF services at Computershare. “Owing to this continuous demand, the industry typically agrees that food stocks are more able to withstand inflationary pressures.”
For those wanting to tap into these industries without the intricacies of picking individual stocks, food-themed exchange-traded funds, or ETFs, present an attractive option.
“The biggest benefit of using an ETF for food exposure is diversification,” says Robert Johnson, professor of finance at Creighton University’s Heider College of Business. “It is very difficult to pick winning stocks even if you are able to identify themes, industries or sectors that are well-positioned to thrive in a given environment.”
These ETFs therefore allow investors to make a more diversified food industry bet, capturing a swath of companies under a single ticker. This not only simplifies the investment process but also aids in keeping trades and commissions to a minimum.
Here are nine food-focused ETFs to buy that could satiate your portfolio’s appetite:
| Food ETF | Expense Ratio |
| Vanguard Consumer Staples ETF (ticker: VDC) | 0.10% |
| Consumer Staples Select Sector SPDR ETF (XLP) | 0.10% |
| iShares U.S. Consumer Staples ETF (IYK) | 0.40% |
| First Trust Nasdaq Food & Beverage ETF (FTXG) | 0.60% |
| Teucrium Agricultural ETF (TAGS) | 0.13% |
| AdvisorShares Restaurant ETF (EATZ) | 0.99% |
| Invesco Food & Beverage ETF (PBJ) | 0.63% |
| Invesco DB Agriculture Fund (DBA) | 0.91% |
| VanEck Agribusiness ETF (MOO) | 0.53% |
Vanguard Consumer Staples ETF (VDC)
“Food and beverages, in addition to household and personal care products, health care and utilities, are non-cyclical or defensive in nature,” Johnson says. “People need to eat, brush their teeth, go to the doctor and heat their homes whether the economy is strong or weak.”
Therefore, a defensive-minded investor could use VDC for a broad U.S. consumer staples tilt. Food stocks held in this ETF’s top holdings include Coca-Cola Co. (KO), PepsiCo Inc. (PEP) and Mondelez International Inc. (MDLZ). The ETF is also cost-effective, with a 0.1% expense ratio.
Consumer Staples Select Sector SPDR ETF (XLP)
Investors wishing to focus only on the largest U.S. food and beverage stocks can use XLP, which tracks the 38 consumer staple stocks represented in the S&P 500. As with VDC, notable names in its top holdings include PepsiCo, Coca Cola and Mondelez. The ETF also charges a 0.1% expense ratio.
“Broadly speaking, food, commodities and consumer staples tend to have less volatility than many other sectors, relatively stable dividend income and consistent long-term growth,” says Jason Mountford, trend analyst at Q.ai. “That makes them fantastic investments for times of uncertainty, as while they may not completely avoid negative returns, they are likely to be less impacted than the market as a whole.”
iShares U.S. Consumer Staples ETF (IYK)
“Companies that either produce or sell food tend to have very inelastic demand, which makes their revenue far more stable than more volatile sectors such as tech,” Mountford says. “This tends to lead to lower levels of volatility, and also generally means consistent dividends though all market cycles.”
Another consumer staples ETF with a high allocation of food companies to watch is IYK. With a three-year beta of 0.58 and 12-month trailing yield of 2.4%, this ETF is much less volatile than the S&P 500, while paying a higher yield. However, it does charge a higher 0.4% expense ratio.
First Trust Nasdaq Food & Beverage ETF (FTXG)
Investors looking for pure-play exposure to food stocks may not like VDC and XLP, given that these ETFs also hold some retailers, tobacco stocks and household goods manufacturers. A viable alternative here is FTXG, which tracks the Nasdaq U.S. Smart Food & Beverage Index.
This ETF selects food and beverage stocks based on a variety of fundamental factors, such as their historical return on assets, gross income and price momentum, while weighting eligible holdings based on their cash flow. However, FTXG’s methodology comes at a much higher 0.6% expense ratio.
Teucrium Agricultural ETF (TAGS)
“As the cost of goods goes up, one of the things that keeps pace is commodities,” says Christopher Day, founder and CEO of Days Global Advisors. “In addition, if there is war in other producing places, raw commodities will benefit from a supply-demand increase.”
For broad food commodity exposure, Teucrium offers TAGS, which holds a portfolio of corn, wheat, soybean and sugar futures. For investors looking to hedge against uncertainty from Ukraine’s grain situation given the ongoing Russian invasion, this ETF could be a way to express that thesis. TAGS has a low expense ratio of just 0.13%, but beware the fund’s low net assets of around $24 million, which can make for low volume and higher bid-ask spreads.
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AdvisorShares Restaurant ETF (EATZ)
“Restaurants are a great business — they are local and aren’t as affected by geopolitics,” Day says. “On the theme side, using an ETF enables you to hone in on specific food interests — say you’re only interested in certain restaurants; you can focus on what you want.”
Investors who wish to target the restaurant segment of the food and beverage business can do so via EATZ, which holds a portfolio of global restaurant, bar, pub, fast food, takeout and food catering companies, most of which are small-cap stocks. The ETF charges a 0.99% expense ratio. This fund is incredibly small at just $2.3 million in assets under management, so the bid-ask spread is rather large, and there’s a hidden fee underneath EATZ that investors should be wary of.
Invesco Food & Beverage ETF (PBJ)
The aptly named PBJ tracks the Dynamic Food & Beverage Intellidex Index, which targets a portfolio of 30 U.S. food and beverage companies based on quantitative screeners. “PBJ’s methodology evaluates companies quarterly, based on a variety of factors grouped into five broad categories, or ‘superfactors’: price momentum, earnings momentum, quality, management action and value,” Reyna says.
Notable current holdings in PBJ include Kraft Heinz Co. (KHC), PepsiCo, Coca-Cola, Monster Beverage Corp. (MNST), Chipotle Mexican Grill Inc. (CMG) and Mondelez International. The ETF charges a 0.63% expense ratio and pays a 12-month dividend yield of 2.4%.
Invesco DB Agriculture Fund (DBA)
Invesco currently offers both DBA and the Invesco Agriculture Commodity Strategy No K-1 ETF (PDBA), the latter of which alleviates investors of the need to file a Schedule K-1 form come tax time. Both ETFs employ a portfolio of futures contracts tracking various commodities such as sugar, cocoa, cattle, soybeans, coffee, corn, wheat, hogs and cotton, while employing strategies to reduce the effects of contango, a phenomenon that can negatively impact futures traders.
“For the liquid commodities in PDBA/DBA, the index uses the ‘optimum yield’ methodology, which seeks to select futures contracts with the most beneficial annualized implied roll yield, placing the exposure up to 13 months out the futures curve,” says Kathy Kriskey, commodity strategist at Invesco. “Corn, soybeans, wheat and sugar employ this methodology, while the meats and the other soft commodities have lower liquidity and therefore do not use the ‘optimum yield’ methodology for the index.”
DBA has a 0.91% expense ratio.
VanEck Agribusiness ETF (MOO)
Investing in food doesn’t mean just focusing on raw commodity inputs or the end distributors of finished food products. Opportunities also exist in agricultural support industries, which include companies producing seeds, fertilizer, farming equipment and veterinary products.
For exposure to a globally diversified portfolio of these companies, VanEck offers MOO, which holds notable agribusiness stocks such as Deere & Co. (DE), an agricultural machinery manufacturer; Nutrien Ltd. (NTR), a Canadian fertilizer producer; and Zoetis Inc. (ZTS), a producer of medicine and vaccinations for livestock. The ETF charges a 0.53% expense ratio.
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9 Food-Focused ETFs to Feed Your Portfolio originally appeared on usnews.com
Update 10/02/23: This story was previously published at an earlier date and has been updated with new information.
