The ETF FOO (Lyxor) replicates the Stoxx Europe 600 Food Index (SXR3), which is composed of 21 leading European agri-food stocks.
This index is fairly concentrated, with only 21 stocks, while Nestlé represents approximately 30% of the index due to its market capitalization of close to € 200bn. This sector is characterized by a proven defensive character: during crises and recessions, the outperformance of the index may be significant as has been seen in recent years, which is explained by the non-cyclical nature of the food supply because food is the last budget that households cut in case of difficulties. Agri-food 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 talking more and more about "foodtech", that is to say the inclusion of products beneficial for health in a food product that we speak of probiotic or of " Omega-3 to cite known examples.
Moreover, the index includes a large share of spirits and brewers, which are also growing due to the increasing adoption of western liqueurs and spirits and beers, which may also sometimes depend on fashion phenomena depending on the country.
All companies in this index account for a large share of their international sales and therefore have a significant exposure to the US dollar and the US economy, as well as to Asia and especially China. Direct foreign exchange risk is significant because most companies are quoted in Swiss Francs and Sterling as against 1/3 approximately quoted in Euro.
The 0.3% fee is fairly standard for this ETF. In 2016, the Food index came out negative at -4.7%, a performance well below the benchmark (Stoxx600 + 1.7%), which was linked to the market arbitrage in the last quarter of 2016, after the US election the so-called "Trump trade", while the defensive sectors (health, concessions, agribusiness, telecom) were abandoned.
The situation is progressing favorably in 2017, the sector is progressing for the time being of 9.3% while the prospects are favorable with profits growth estimated to approximately + 8% and mainly driven by the emerging countries. Nestlé (29%) and ABI (16% of the index) were again well oriented with a 12.8% increase for Nestlé, partly as a result of the announcement of massive share buy-backs and the presence of activists in the capital, while ABI has only risen 0.6% since the beginning of the year, despite good results in Q217, while its strong exposure to emerging markets makes it more vulnerable to the current tensions in Asia.
