Global X has announced the launch of its latest ETF, rolling out a product that will offer exposure to the global food and beverage industry. The new Global X Food ETF (EATX) will seek to replicate the Solactive Global Food Index, a benchmark that consists of about 50 companies engaged in the the agriproduct or livestock operations or in the manufacture, sale or distribution of food products, agriproducts and products related to the development of new food technologies.
Approximately half of the underlying holdings will be U.S. stocks, with the remainder spread across China, Switzerland, Japan, the U.K. and several other developed and emerging markets. The largest individual components include Nestle (OTCPK:NSRGY), Danone (OTCQX:DANOY), Brasil Foods (BRFS) and General Mills (GIS).
Driven by Emerging Markets
While many of the companies included in the new ETF fall under the umbrella of the U.S. consumer staples sector, EATX may present an opportunity for investors to capitalize on ongoing demographic shifts and tremendous growth potential in emerging markets. As the middle class in the developing world has rapidly expanded, demand for dairy and livestock resources has skyrocketed. With urbanization expected to continue in China, India and other emerging markets for decades to come, demand for food resources should accelerate for the foreseeable future. “Emerging markets are key to unlocking future growth because their economies are growing at a significantly higher rate than developed markets,” said William Johnson, Heinz (HNZ) Chairman and CEO. “The middle class in emerging markets will eventually outnumber the combined populations of the U.S. and Europe.”
While many of the components of EATX are headquartered in developed markets and listed on exchanges there, they often generate substantial portions of revenue and earnings in emerging markets. Nestle, for example, recently announced that emerging markets account for about 40% of total sales. The Swiss food manufacturer cited strong growth in China, South Asia and Africa as drivers of 12% growth in emerging markets during its recent earnings report. International sales account for about 60% of revenues for Kraft (KFT), and Hershey (HSY) is expected to generate $1 billion in international net sales by 2015.
Growth in the middle class of emerging markets is accompanied by an increase in discretionary spending, and demand for higher quality food intakes. That crates opportunities for both local food providers and international companies to grow revenues as their base of potential customers expands.
Many agencies have issued dire predictions for extreme food shortages in coming decades as ongoing climate change and demographic shifts put a strain on existing supplies. North Korea could run out of food as quickly as next month, and several African countries are expected to face significant shortfalls as well in coming years.
Global X Management Company, LLC, the fund adviser, will donate any profit it earns from EATX to Action Against Hunger/ACF International, a global humanitarian organization that works to save the lives of malnourished children while providing communities with sustainable access to safe water and long-term solutions to hunger. “In harnessing global food markets for good, Global X Management will be making a significant contribution to the vulnerable communities we serve around the world,” said Geoffrey M. Glick, Director of External Relations for Action Against Hunger.
The new ETF will charge an expense ratio of 0.65%. The breakeven point for most ETFs is between $25 million and $50 million in AUM.
PowerShares offers the only other ETF offering exposure to the food and beverage industry. The Dynamic Food and Beverage Portfolio (PBJ) includes about 30 U.S-listed food companies. Though there is some overlap between the two, the similarities are limited: EATX includes more individual securities and international components, whereas PBJ is strictly a domestic equity fund.
Disclosure: No positions at time of writing.
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