What Is a Food Industry ETF?
A food-industry exchange-traded fund (ETF) is a food-focused fund that invests in food-related companies. This broad industry covers household consumer staples, restaurants, grocery stores, and food distribution companies.
An ETF provides investors with exposure to a range of companies without the need to individually purchase shares of stock. A food industry ETF is also a way to add diversification to an investor's portfolio.
Key Takeaways
- The food sector encompasses companies that manufacture and distribute food and beverages, alcohol, and cigarettes.
- A food-industry ETF is an exchange-traded fund that invests in food-related companies.
- Food-focused ETFs invest in companies such as restaurants, food commodities, and consumer staples.
Understanding a Food Industry ETF
The food sector encompasses companies that manufacture and distribute food and beverages, alcohol, and cigarettes. Subsectors can run the gamut, including wheat and grains, sugar, coffee, and livestock. Also included in the food industry sector are U.S. fast-food chains with a global presence.
As with other indexed ETFs, a food industry ETF may aim to match the investment performance of an underlying index. The Food and Agriculture Organization of the United Nations tracks monthly changes in international food prices. The FAO indexes compile information on food commodities like cereal, meat, and sugar.
Types of Food Industry ETFs
Consumer Staples: Food and beverage companies account for a large share of the holdings of consumer staples ETFs. The top holdings of the Vanguard Consumer Staples ETF include Proctor & Gamble, Costco, and Walmart.
Food and Beverage: The First Trust Nasdaq Food & Beverage ETF includes Coca-Cola, J&J Snack Foods Corp., and the Campbell Soup Company.
Commodities: The futures trading of commodities like sugar, coffee, and live cattle are included in the Invesco DB Agriculture Fund.
Restaurants: Fast food establishments like Chipotle, McDonald's, and Starbucks are traded in the AdvisorShares Restaurant ETF.
Food-related trends have spawned “socially responsible” ETFs that focus on organics or companies with a positive track record on their relationship with the environment and social issues.
How To Invest in Food ETFs
Investors may buy individual stocks in the food sector. A food-focused ETF allows investors to hold shares in multiple companies across the industry. Financial institutions such as Fidelity or Vanguard offer account holders the opportunity to invest in active equity, fixed income, or sector ETFs. These investments commonly do not require a minimum investment and come with low fees.
What Items Are Considered Consumer Staples?
Daily products used by consumers are considered staples and include food and beverages, household goods, and alcohol and tobacco. Consumer staples are items with consistent demand, regardless of the economic outlook.
How Are Food ETFs Affected By Economic Turmoil?
Food-related ETFs help diversify a portfolioand can remain resilient even during economic turmoil because consumer staples and food commodities stay in demand during inflation and recession. However, while food and beverage companies are viewed as recession-proof, restaurants and their viability were tested during the COVID-19 pandemic.
Do Food Related ETFs Follow Food Indexes?
Several indexes track food prices, including the Food and Agriculture Organization of the United Nations (FAO) Food Price Index, which monitors changes in the international prices of globally-traded commodities. Food-related ETFs commonly track related indexes. The Invesco Food & Beverage ETF is based on the Dynamic Food & Beverage Intellidex Index. The First Trust Nasdaq Food and Beverage ETF mimics the Nasdaq U.S. Smart Food & Beverage Index.
The Bottom Line
The food sector encompasses companies that manufacture and distribute food and beverages, alcohol, and cigarettes. ETFs expose investors to a range of companies without the need to purchase shares of stock. A food-focused ETF invests in food-related companies such as restaurants, commodities, and consumer staples.
