Market Overview

This Quirky ETF Has The Largest Kraft Heinz Weight

This Quirky ETF Has The Largest Kraft Heinz Weight

Shares of packaged foods giant Kraft Heinz Co. (NASDAQ: KHC) were down more than 25 percent Friday morning after the company said it's taking a $15.4-billion non-cash writedown on assets, including some of its venerable brands.

The company also said it received a subpoena from the Securities and Exchange Commission and slashed its quarterly dividend. 

What Happened

The decline in Kraft Heinz shares could be felt in the world of exchange traded funds, where more than 160 funds have exposure to the stock. The Invesco QQQ (NASDAQ: QQQ) holds the most shares of the embattled staples company, but the ETF with the largest weight to Kraft Heinz is the First Trust Consumer Staples AlphaDEX Fund (NYSE: FXG).

Why It's Important

As of Wednesday, Feb. 20, FXG had an allocation of 5.75 percent to Kraft Heinz, according to issuer data. That makes the stock FXG's third-largest holding. By comparison, the Consumer Staples Select Sector SPDR (NYSE: XLP), the largest ETF focused on the sector, has a Kraft Heinz weight of just 2.06 percent. The stock is not a top 10 holding in XLP.

The $335.70-million FXG is a smart beta alternative to cap-weighted staples funds like XLP. FXG's underlying index selects consumer staples stocks from the Russell 1000 Index based “on growth factors including three, six and 12-month price appreciation, sales to price and one-year sales growth, and, separately, on value factors including book value to price, cash flow to price and return on assets,” according to First Trust.

Fourth-quarter earnings reported by Kraft Heinz missed even the lowest analyst estimates, according to Bloomberg. FXG rebalances quarterly, so it remains to be seen whether or not the stock is booted from the fund.

What's Next

In an effort to lower its debt burden, Kraft Heinz trimmed its quarterly dividend from 62.5 cents to 40 cents per share. 

Fourteen dividend ETFs have exposure to Kraft Heinz. While none of those funds directly use dividend increase streaks in their weighting schemes — a strategy that would imperil the status of Kraft Heinz if it resided in those funds — some of the payout ETFs holding shares of the stock weight stocks by dividends paid. That could lead to lower exposure to Kraft Heinz when those funds rebalance.

Related Links:

This ETF Is Swelling In February

A Better EM ETF

Photo courtesy of Kraft Heinz. 


Related Articles (FXG + KHC)

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