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An Unintended ETF Tariff Victim

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An Unintended ETF Tariff Victim
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The White House's tariffs on imported aluminum and steel are proving controversial and have been met with ire by plenty of U.S. trading partners. While some industry and sector exchange traded funds are benefiting from the tariffs, some surprising funds could be pinched by the protectionist trade policies.

The Spirited Funds/ETFMG Whiskey&Spirits ETF (NYSE: WSKY) could find itself in the pinched category as some U.S. trading partners announce retaliatory tariffs. WSKY follows the Spirited Funds/ETFMG Whiskey & Spirits Index, which “includes core companies that are principally engaged in the production, distillation, storage, or aging of whiskey and non-core companies that derive a portion of their revenue from whiskey and spirits,” according to the issuer.

Brown-Forman Corp. (NYSE: BF-A), the maker of Jack Daniels and a slew of other well-known liquor brands, is among the companies speaking out against the White House tariffs. The stock is WSKY's fifth-largest holding at a weight of 5 percent.

What Jack Says

“Jack Daniels doesn't rely on steel and aluminum from other countries to make whiskey,” reports Esquire. “But it does rely on thirsty drinkers abroad to buy what it's selling — Europe is Brown-Forman's second-biggest market. Unfortunately, it may have lost its pipeline to Tennessee whiskey fans in Europe, because in retaliation to Trump's tariff, the E.U. has proposed its own retaliatory tariffs on American-made products.”

The list of American-made products the European Union is targeting for retaliatory tariffs are vices such as booze and chewing tobacco, as well as staples such as orange juice and peanut butter.

“We’re going to monitor the potential for retaliatory tariffs closely. And of course, we’re sharing our point of view in Washington as well," Brown-Forman CEO Paul Varga said on the firm's post-earnings conference call.

Global Diversity

To be fair to WSKY, the ETF traded modestly higher over the past week and month. Importantly, the ETF is a global fund and is not solely dependent on U.S. companies as drivers of its price action. The U.S. is merely the whiskey ETF's third-largest country weight at 15.4 percent, trailing the U.K. and France.

WSKY, which debuted in October 2016, holds 23 stocks. The ETF allocates almost 22 percent of its weight to distillers and vinters and 18.4 percent to breweries.

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