The landscape of growing ETF industry is changing rapidly with the introduction of more niche strategies. In this vein, ETF Managers Group partnered with Spirited Funds and rolled out a first-of-its-kind ETF that focuses on distilleries, breweries, vintners and related luxury goods companies involved in the alcohol business (read: Too Many ETFs Flying in the Market?).
The Spirited Funds/ETFMG Whiskey and Spirits ETF WSKY seeks to track the returns of the Spirited Funds/ETFMG Whiskey & Spirits Index, a new way to target the fast-growing world of high-end whiskey and spirits. The benchmark divides the companies into two tiers – “Core” companies with at least 85% weight and “Non-Core” companies that comprise the rest of the portfolio.
“Core” companies include the operation of a whiskey distillery and the production of alcoholic beverages while “Non-Core” companies include luxury goods firms that have at least $500 million in annual whiskey and spirits sales as well as soft-drink companies that are involved in whiskey distribution or that derive the majority of their revenues from the provision of mixers, as per the prospectus.
What’s Driving the Move to the Niche Space?
The whiskey and spirits sector, a niche within the consumer discretionary space, has been seeing explosive growth. This is especially true as high end premium and super-premium bourbon and Tennessee whiskey brands saw revenues surge 50% and 155%, respectively, between 2010 and 2015 in the U.S. alone, as per the Distilled Spirits Council of the United States. Sales of distilled spirits climbed to a staggering $72 billion last year. Spirits have been seeing increased market share relative to beer over the past six years in the overall alcohol industry.
This trend will likely continue in the coming years as well. According to David Bolton, President and CEO at Spirited Funds, “the industry is in five of a 25-40 year supercycle that will likely see continued growth in consumer demand for whiskey and spirits, much like what has occurred with craft breweries over the past two decades.”
Further, since the demand for whiskey and spirits isn’t affected by good or bad economic times, these companies provide some protection in down markets (see: all the Consumer Discretionary ETFs here).
As a result, the ETF provides investors an opportunity to capitalize on the profits of the industry popularly known for its consistent demand amid varying market conditions and economic cycles, thereby making it a solid pick. Below, we have highlighted some details about this new ETF for those who want to consider this novel approach.
Currently, the new ETF holds 23 global stocks in its basket with largest allocation going to the top two firms Diageo and Pernod Ricard with 23.6% and 11% share, respectively. Some of theother top holdings include Brown-Forman, Thai Beverage and Constellation Brands.
The product has an expense ratio of 0.75%, which is pretty steep when compared with other consumer discretionary funds or other niche products in the space.
ETF Competition & Bottom Line
Though there aren’t any real competitors to this unique product, a few niche ETFs in the consumer discretionary space may attract investors (though none follow the alcoholic segment in particular).
These include The Restaurant ETF BITE, The Organics ETF and The Health and Fitness ETF FITS. All these funds have done well in terms of performance since their debut and have accumulated a decent level of assets. ORG and FITS have a lower expense ratio of 0.50% while BITE charges similar to WSKY. In terms of fees, WSKY might have some difficulty in building up assets initially (read: 5 Successful New ETFs of 1H16).
The new fund will no doubt get a first mover advantage to capture the robust value of the global whiskey and spirits industry with alcohol boasting sales of more than $1 trillion per year. It is prudent to focus on this type of industry that demonstrates steady demand even in times of economic and political uncertainty.
Further, if the fund can outperform, investors could definitely embrace this novel ETF to boost their portfolio returns.
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