Under The Hood: Defense Through Food

Market volatility got you down? On the hunt for some reliable dividend payers? Tired of all the headline risk associated with the energy sector? Frustrated by the lofty valuations and the triple-digit price tags that are so prominent with the sexiest Nasdaq stocks?

If you answered "yes" to any or all of those questions, today's "Under the Hood" play may be right up your alley. That is the PowerShares Dynamic Food & Beverage ETF PBJ. Cute ticker, misleading name because there is little that is dynamic about food and beverage stocks, but then again, that's pretty much the reason for getting involved with them in the first place.

It is purely by coincidence that we are reviewing PBJ today, almost exactly a year to the day removed from the first time we looked at the ETF, extolling its worth as a value/dividend play and questioning why this ETF receives so little fanfare. Since our piece "Time To Drink Up This Food And Beverage ETF?" ran on March 16, 2010, PBJ is up over 20%, double the performance of the S&P 500.

We noted then that PBJ can serve as an indirect emerging markets play with its exposure to Coke KO Pepsi PEP, McDonald's MCD and Yum! Brands YUM and maintain that view today.

In the past year, PBJ's assets under management have grown by more than 14% to just over $63 million and its average daily volume has more than doubled, so perhaps some investors did heed our advice that this is a worthwhile ETF.

The 30-stock ETF features an expense ratio of 0.63%, which we'd like to see come down a tad, but it's tolerable for now.

Dividends, as we noted last year, are a big part of the allure here. Coke, McDonald's and Pepsi are generous and reliable dividend payers as is PBJ constituent General Mills GIS, the second-largest U.S. food company by market cap. Big G reports earnings next and a dividend hike could be in the offing with that report.

The biggest risk headwind facing PBJ is how higher commodity prices weigh on its holdings, but the other side of that coin is that risk should be "priced in" to many food and beverage stocks by now. That says PBJ could still be worth a look even after a 20% run in the past year.