Food & Beverage Europe (FOOD) : Strong relative performance

The Lyxor FOO ETF (UCITS), created in 08/2006 is listed in Euro on Euronext and replicates the Stoxx Europe 600 Food Index (SXR3), which is composed of the 22 main European agri-food stocks. It should be noted that stocks ​​outside the Euro Zone represent 58% of the index, which is not insignificant given the potentially significant fluctuations of the £ and CHF against the Euro.

The fee of this ETF is 0.3% and the AUM is approximately € 120m. The replication method is indirect (via a swap) and the distribution method is capitalized.

Alternative ETFs: EXH3 (iShares in Euro), XS3R (DB-X in Euro)

 

Latest developments

In 2016 the Food index came out negative -4.7%, a performance significantly lower than the benchmark (Stoxx600NR: + 1.7%), but was up 12.6% in 2017 largely thanks to the Chinese growth.

The sector posted a slight increase so far in 2018 of + 0.4%, with an acceleration in the last 3 months.

The outlook for the sector is favorable, with earnings growth estimated at around 8% this year, driven by emerging countries, with China in first place. The index is currently driven by spirits manufacturers like Diageo and Pernod Ricard, while Nestlé (30% of capitalization) that weighed negatively on the index in the first quarter due to a drop in demand in the US and pressure on prices in Brazil, but is currently recovering, and shows a + 4% so far in July. In the same way, ABI began a recovery since June after a poor performance in the US and Brazil in Q1.

The defensive theme of food seems attractive again within an increasingly uncertain environment.

 

Index & components

This index is fairly concentrated since it has only 22 stocks while Nestlé represents around 30% of the index due to its market capitalization of more than € 200bn.

This sector is characterized by a proven defensive nature: during crises and recessions, the outperformance of the index can be significant, as we have seen in recent years due to its non-cyclical nature as food is the last budget cut by households in case of difficulties.

Agribusiness is also a growing sector because of the willingness of emerging countries to meet Western standards in terms of quality (mineral water, milk etc...), while in the West food is increasingly perceived as a product that has an impact on health, we are now talking about "foodtech" that is to say the inclusion of health benefits in a food product such as probiotics or omega-3 to quote known examples. This has the effect of reinforcing the trend towards higher value-added and more qualitative products which is positive for margins, but conversely the risks also increase with a greater demand for transparency and for more advanced and systematic ingredient risk testing leading to certain products being strongly implicated, such as Nutella criticized because of the presence in some of its products of palm oil (aspartame) and DEHP (phthalate) deemed dangerous to health.

In addition, the index includes a large share of spirits and brewers, which are also growing due to the increasing adoption of liquors and spirits and beers, which may also depend also sometimes on fashion phenomena depending on the country, crops and climate. All companies in this index account for a large share of their international sales and therefore have significant exposure to the dollar and the US economy, as well as in Asia and especially in China where local competitors are becoming increasingly aggressive.

Direct currency risk is important because the majority of companies are listed in Swiss Francs and Sterling, compared to around 42% quoted in Euro.