Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the food and beverage industry to thrive over time as the world's population grows, economies develop, and demand for food and drink keeps rising, the PowerShares Dynamic Food & Beverage ETF (NYSE: PBJ ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously. (It has a clever ticker symbol, to boot.)
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.63%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed rather well, outpacing the world market over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a somewhat steep turnover rate of 134%, this fund, like many of its mutual fund peers, isn't committing to its picks for very long. Low turnover ratios can reflect more conviction.
What's in it?
More than a few food and beverage companies had strong performances over the past year. Organic and natural food products company Hain Celestial (Nasdaq: HAIN ) surged 113% over the past year, for example. It jumped some 20% just a day or so ago, after reporting quarterly earnings up 82% and revenue up 22%. The company has thwarted naysayers worried about rising food costs and has announced the acquisition of Britain's Premier Foods, a maker of sweet spreads and jellies.
B&G Foods (NYSE: BGS ) , up 77%, is also faring well, despite rising food costs. It has been a savvy acquirer, and its brands include Ortega, Mrs. Dash, Cream of Wheat, Underwood, Molly McButter, Baker's Joy, and Static Guard. Some worry, though, how well the maker of shelf-stable foods can grow organically, without relying on acquisitions. And the company's debt load due to its purchases also worries some.
Seed and herbicide giant Monsanto (NYSE: MON ) , meanwhile, advanced 23%, posting relatively consistent growth, enjoying relatively fat profit margins, and grabbing even more market share from rivals. It seems perpetually mired in controversy, though, for its genetically modified seeds and opposition to regulations requiring labeling of genetically modified items. With an early spring lengthening the growing season, Monsanto's sales grew more than expected recently, and drought conditions could further spur demand for modified seeds.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Chiquita Brands International (NYSE: CQB ) sank 42%, largely on disappointing financial results (for which the company has pointed higher fuel costs and currency fluctuations). The company has a cost-cutting plan in the works and is seeking a new CEO, as well.
The big picture
Demand for food and beverages isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
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