2024-01-12 15:47:43 ET
Summary
- The Consumer Staples sector is performing well, indicating a potentially volatile year ahead.
- Investing in food and beverage stocks offers stability and growth opportunities.
- The Invesco Food & Beverage ETF provides exposure to the sector with a diverse range of holdings.
The best-performing sectors to start 2024 have all been defensive in nature, with Consumer Staples being a particularly interesting performer. Typically, when Consumer Staples start the year strong, it tends to be a warning for the entire year that we are in a volatile environment. For those eyeing the food and beverage sector within Consumer Staples as a potential relative safe-haven, the Invesco Food & Beverage ETF ( PBJ ) is worth considering.
Investing in food and beverage stocks offers a strong case due to their non-cyclical nature; these companies provide fundamental products that people consume daily, regardless of the economic environment. This sector is characterized by a high level of brand loyalty, creating predictable cash flows and a solid customer base. Moreover, food and beverage companies are adept at innovation, continually adapting to consumer trends such as organic and health-conscious products, keeping them relevant and competitive. They also benefit from global distribution networks, allowing them to serve growing demand in emerging markets, which can lead to significant growth opportunities. As producers of essential goods, these companies can often pass through cost inflation to consumers, protecting their margins.
PBJ is an exchange-traded fund, or ETF, that offers investors exposure to U.S. firms operating in the food and beverage sector. It tracks the Dynamic Food & Beverage Intellidex Index, which has in its U.S. companies primarily engaged in the manufacture, sale, or distribution of food and beverage products, agricultural products, and products related to new food technologies. The fund's expense ratio stands at 0.57%.
Top Holdings of the PBJ Fund
PBJ's portfolio consists of 32 holdings. Top positions include:
- Mondelez International ( MDLZ ) : A leading multinational confectionery, food, and beverage conglomerate known for brands like Oreo, Cadbury, and Toblerone.
- Constellation Brands ( STZ ) : A leading international producer and marketer of beer, wine, and spirits with a diverse portfolio of premium brands. The company is renowned for its commitment to quality, craftsmanship, and consumer connections, evidenced by its high-performing labels such as Corona, Modelo, and Robert Mondavi.
- Kraft Heinz ( KHC ) : One of the largest food and beverage companies globally, with a diverse portfolio featuring brands like Heinz, Kraft, and Oscar Mayer.
- Monster Beverage Corp ( MNST ): A globally recognized beverage company specializing in the production and distribution of energy drinks, notably its flagship Monster Energy line. The company's portfolio caters to a dynamic, active consumer base, offering a variety of energy-boosting products aimed at fueling high-intensity lifestyles and athletic pursuits.
- Archer-Daniels-Midland ( ADM ) : A global food processing and commodities trading corporation.
Peer Comparison: PBJ vs. Other Similar ETFs
When compared to other sector-focused ETFs, PBJ's performance and investment approach provide a distinctive profile. For instance, the Consumer Staples Select Sector SPDR® Fund ETF ( XLP ) primarily invests in large-cap consumer staples stocks, whereas PBJ provides exposure to a broader range of companies, including mid and small-cap stocks. On a relative basis, PBJ has outperformed XLP since the Covid 2020 lows, but has largely kept in line since.
Advantages and Disadvantages of Investing in the PBJ ETF
PBJ offers several advantages, such as providing investors with diversified exposure to the food and beverage sector and potential earnings growth. Its unique emphasis on small and mid-cap stocks also sets it apart from its peers.
However, investors need to be mindful of several risks. The ETF's high expense ratio of 0.57% can hamper returns over time. Furthermore, the fund's performance has been inconsistent over the years, largely due to investor focus on Technology sector momentum. I expect that to change this year in what could be a defensive rotation that persists into year-end.
To Invest or Not to Invest?
Investing in PBJ could be an appealing proposition for investors seeking exposure to the food and beverage sector. The ETF's comprehensive approach, encompassing a diverse range of companies, offers potential earnings growth and diversification benefits. I think the Consumer Staples Select Sector SPDR® Fund ETF is a good fund for those wanting more stable companies with lower volatility overall this year.
For further details see:
PBJ: Food And Beverage Works In A Volatile Year