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 21 main European agri-food stocks.
It should be noted that stocks outside the Euro Zone represent 59% of the index, which is significant given the potentially fluctuations of the £ and CHF against the Euro.
The fee of this ETF is 0.3% and the AUM is approximately € 169m. 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).
Index & components
This index is fairly concentrated since it has only 21 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 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 41% quoted in Euro.
Latest developments
In 2016 the Food index came out at a negative -4.7%, a performance well below the benchmark (Stoxx600NR: + 1.7%), which was linked to the cyclical sector rotation in the last quarter of 2016, after the US election which was called the "Trump trade", while the defensive sectors (health, concessions, agri-food, telecom) were left aside.
The situation is improving in 2017, the sector is currently up 13.8% YTD while the outlook is favorable with earnings growth estimated at around 10% in 2017 and 2018 and mostly driven by emerging countries, China in first rank.
Two of the three big names in the index, Nestlé (30% of the index), Diageo (15%) and ABI (14%), are again well oriented with an annual increase of 17.7% for Nestlé partly thanks to the announcement of massive share buy-backs and the presence of equity activists, Diageo is up 29% in 2017 thanks to emerging countries (particularly Africa) and share buybacks, while ABI is only progressing by 2% YTD, while the acquisition of SABMiller still does not seem fully digested.
Third quarter results were better than expected for the whole sector and driven by growth in emerging markets, particularly in China. Visibility is satisfactory for 2018.
