Market Overview

Checking In: Trying To Find Shelter From The Storm


In more benign market pullbacks, investors can usually count on a couple of sectors to provide some shelter from the storm. Utilities, telecom and food producers not only offer tidy dividends, but the defensive traits that make those groups worth embracing during what considered be a “normal” market retreat.

Problem is the recent market tumble has been anything but benign or normal and scores of ETFs that look like defensive plays from the outside have suffered severe punishment, much like their high-beta counterparts.

One ETF that is looking alluring as a value play after enduring an arguably overdone sell-off is the Global X Food ETF (NYSE: EATX), the first of Global X's 4 Fs of the food supply chain suite of ETFs and today's “Checking In” candidate.

EATX, which is home to 50 stocks and an expense ratio of 0.65%, made its debut on May 3 and thus far has done a fair job of attracting assets, garnering nearly $3 million in investor inflows.

EATX's composition is a bit more international than most ETFs tracking food producers as France's Danone and Nestle (PK: NSRGY), the world's largest food company, are the ETF's top-two holdings accounting for over 10% of the ETF's weight.

Even with the international exposure, the U.S. is still the dominant country weight at over 44% and investors will find plenty of familiar names including Heinz (NYSE: HNZ), Kellogg (NYSE: K) and General Mills (NYSE: GIS) among the new ETF's top-10 holdings.

As Benzinga has previously noted, EATX is a direct rival to the PowerShares Dynamic Food & Beverage Portfolio (NYSE: PBJ), another fund that should be considered defensive.

How defensive have these ETFs been? Well, the harsh reality is neither has done well in the past three months, but they are performing less poorly than the S&P 500. In that time frame, the S&P 500 is down 17% while PBJ is off just over 10%. EATX is the “winner” in this comparison with a decline of 8%.

Given its constituency, EATX will never be a growth play or a fast mover and that's OK. Global demographic trends, including rising middle classes in the emerging markets, make food companies with high international exposure and ETFs such as EATX compelling long-term plays.

On a historical basis, that has been the way to view the food sector and EATX is no different. Tuesday's market gains not withstanding, there is probably more downside left for the market to endure. When that condition abates, feasting on some shares of EATX could prove to be a tasty proposition for patient investors.

Posted-In: Long Ideas News Sector ETFs Short Ideas New ETFs Intraday Update Markets Trading Ideas


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