A Healthy Investing Diet Should Consider All These Four Food Funds

The market has been rightly focused on energy -- and its up to 40% year-to-date returns, and the inflationary effects of those earnings. I figured, however, I would step away from the fray and focus on another sector that, while not as robust as energy, still looks attractive from both a returns and valuation perspective, especially compared to the broader market. That segment is? The tastiest of consumer staples: Food. While this sounds like another new theme that issuers are exploring, the first of these funds was launched back in 2005 by then upstart issuer PowerShares and is now owned and run by Invesco since its 2018 acquisition. The below table lists the funds focused on this segment. In this article, I'm going to review each of these funds' indexes and give a high-level overview of each funds' approach. The Recipe Book In order of year-to-date (to Wednesday) returns, the VanEck Agribusiness exchange-traded fund tracks the MVIS Global Agribusiness Index, which touts a minimum $150 million market cap threshold, a $1 million daily value traded minimum. Despite referring to itself as a Pure-Play index a minimum 50% revenue exposure (with a buffer rule allowing as little as 25% exposure for existing index components) to Agribusiness, which includes a broad group of activities, including chemical-fertilizer producers, seed developers, irrigation, farm equipment, livestock, aquaculture, plant-based meat and dairy alternatives, and plantations like grain, sugar cane, palms oil and tobacco. Companies predominately engaged in packaged food sales, biodiesel and ethanol as well as forestry are excluded from the selection pool. The fund currently has 52 equity holdings and provides investors with a global exposure. North American companies still make up 68% of the portfolio, Europe 15% with Asia and South America make up the balance. The Invesco Dynamic Food & Beverage ETF was launched in 2005 and tracks the NYSE Dynamic Food & Beverage Intellidex Index which uses a similar approach to security selection as First Trust's AlphaDex series. Once a broad universe of U.S.-listed names has been established by New York Stock Exchange analysts, those names are run through a gauntlet of 40 or more factors within five main categories including price momentum, earnings momentum, quality, management action and value. The top 30 scoring names are selected and are factor-weighted to arrive at the final portfolio. The First Trust Nasdaq Food & Beverage ETF was launched in 2016 and tracks the Nasdaq US Smart Food & Beverage Index, which starts with the following Russell Industry Classification Benchmark (ICB) subsectors including brewers, distillers and vintners, soft drinks, farming/fishing/ranching and plantations, food products, fruit and grain processing, and sugar. Eligible names are first ranked by averaged daily value traded and the top 30 names are selected. Names are then scored by the following factors: volatility (trailing one-year share price volatility), value (defined as cash flow to price) and growth (average of 3-, 6-, 9- and 12-month returns). Weights are set using a factor weighting method. The iShares MSCI Global Agriculture Producers ETF was launched in 2012 and tracks the MSCI ACWI Select Agriculture Producers Investible Market Index. ACWI stands for All-Country World Index, and this index lives up to its title with over 140 equity holdings across 34 countries and almost 30 local currency positions. What I found interesting is that his fund also has positions in S&P 500 eMini and Euro Stoxx 50 June expiry futures. What I found even more interesting is that the fund still has a handful of Russian names in the portfolio. They are marked at $0.0 or $0.01 per share, so it looks like the portfolio managers were either too slow on pulling the trigger on these names or have resigned themselves to being long-term investors. The index starts with the GICS framework and sets the broad universe using names classified in the following GICS Subindustries: fertilizers & agriculture chemicals, agricultural & farm machinery, agricultural products, and packaged food and meats. This index is market capitalization weighted. Putting It All On The Table As you can tell from the chart below, there are some clear differences between these funds, at least since the launch of FTXG on Sept. 21, 2016 through the close on Wednesday. Over time, it looks like a global exposure has benefitted shareholders in MOO and VEGI, while sticking to the familiar territory of U.S. markets has meant shareholders of FTXG and PBJ, have left some gains on the table. From the table above, you can see that year-to-date returns to Wednesday show VEGI and FXCG leading the way. While VEGI has been dominating in the near- and long-term, I'm not really a fan of their kitchen sink approach with broad market futures exposure and reliance on the ICB framework to set their investible universe, especially when I see names that have a de minimis exposure to agribusiness. I'm also not a fan of MOO's 50% minimum revenue exposure. I did run attribution on all these funds and, unsurprisingly, a number of top contributors to year-to-date returns are shared across these funds including Archer Daniels , Deere & Company , Bunge Limited . Some readers may be shaking their heads and wondering why I'm not a fan of the two funds that seem to be winning the long-term return race. I'll remind everyone, however, that when you start to move away from broad market investing and put dollars to work in a targeted strategy, the last thing you want is those results to come from influences outside that strategy. As I've said before, if you order a hearty Cabernet Sauvignon to complement your meal and the waiter shows up with a box of Rosé, it just isn't what you were looking for, and ultimately could throw off your meal. (DE is among the holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these stocks? Learn more now.)

A Healthy Investing Diet Should Consider All These Four Food Funds

Here we'll set the table with four exchange-traded funds (that include plenty of VEGIs and even some PBJ) and see which fund looks the most nutritious for our portfolio.

Columnist Conversation

AAP Podcast: This Solar Company Is a Head-Turner

Very Cautious

This Weekend on Real Money

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.