Food ETF Benefits As Industry Cuts Dead Weight | ETF Trends

Fast food may not be the most lean and mean cuisine, but the operations of its purveyors are becoming that way. Smarter use of money and casting off dead weight could be a gain for exchange traded funds (ETFs) that own these companies.

As the economy recovers, fast food corporations are taking a hard look at their operations as they decide what’s next in the era of “the new normal”:

  • Last Thursday, Wendy’s/Arby’s Group, Inc. (NYSE: WEN) stated that it is “exploring strategic alternatives for Arby’s Restaurant Group, Inc., including a sale of the brand,” writes Daniel Gross for Yahoo! Finance.
  • Yum! Brands (NYSE: YUM), owner of Pizza Hut, KFC and Taco Bell, said it will accept buyout orders for A&W and Long John Silver’s.
  • Late last year, Benihana put itself up for sale, and private equity firms acquired Burger King and CKE restaurants, the parent company of Carl’s Jr.

While consumer spending is slowly rising, lower- and middle-income people are still struggling. Meanwhile, fast food chains are losing market share, low-cost food trucks are expanding, there is a changing trend toward low-priced high-quality burger joints and a greater sense of health consciousness.

The downfall of America’s chain restaurant business may be due to the fact that companies are more focused on overseas ventures, such as the quickly growing emerging markets, namely China, than on domestic businesses. For instance, in the third quarter, Yum revenue generated from the United States was $970 million, whereas China made up $1.19 billion and other international markets saw $704 million in revenue.

For more information on the food industry, visit our food & beverage category.

PowerShares Dynamic Food & Beverage (NYSEArca: PBJ) should benefit not only from the tighter operations here but from an ever-growing consumer base in overseas markets.

Other major holders of fast food giants include:

  • Consumer Discretionary Select Sector SPDR (NYSEArca: XLY): McDonald’s is 6.5%, Yum! is 1.9%
  • iShares Dow Jones U.S. Consumer (NYSEArca: IYC): McDonald’s is 4.9%, Yum! is 1.4%
  • Vanguard Consumer Discretionary (NYSEArca: VCR): McDonald’s is 4.9%
  • PowerShares Dynamic Leisure & Entertainment (NYSEArca: PEJ): Yum! is 4.6%, McDonald’s is 4.6%, Sonic is 3% and Papa John’s is 2.9%.

Max Chen contribute to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.