Can New Alcohol ETF Compete with Other Thematic ETFs?

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Some basic goods and services such as fertilizers, water, food and health services are essential for human existence and it makes sense to invest in these goods through sector specific ETFs as they provide a good source of stable returns. Discretionary items means things that people have an option not to buy as it is not a necessity, such as white goods like TVs, washing machines etc. Non-Discretionary items on the other hand means items that people cannot avoid. .

Though alcohol is classified as a consumer discretionary item, it is actually non-discretionary in practical terms. People tend to drink in good times and even more in bad times. Guns and alcohol are something that never go out of favor irrespective of the economic conditions. This mostly recession proof sector offers slow and steady returns for risk averse investors. Given below is a list of few thematic ETFs and their prospects in context of the present economic conditions.

The smart money sentiment is an important metric that can be used to assess the long-term profitability of a stock. While there are thousands of stocks trading daily on the market, taking a look at what hedge funds think about certain companies can narrow down the search significantly. At Insider Monkey, we track more than 745 hedge funds, whose 13F filings we analyze as part of our small-cap strategy. Our research has shown that imitating a portfolio that includes the 15 most popular small-cap stocks among hedge funds can outperform the market by as much as 95 basis points per month on average (see more details here).

Largest Alcohol Companies in the World


Spirited Funds / ETFMG Whiskey & Spirits ETF (NYSEARCA:WSKY) tracks the returns of the Spirited Funds/ETFMG Whiskey & Spirits Index. The portfolio consists of companies that produce and market whiskey and spirits, including names like France’s Pernod Ricard, England’s Diageo, USA’s Brown Forman Corp, and Japan’s Kirin Holdings. The portfolio is well diversified across major countries and contains 23 stocks. The ETF should benefit from a shift in the consumers behavior who are preferring premium brands these days. The whiskey and spirits market is expected to grow with alcohol sales accounting for more than $1 trillion per year globally. It is a good way for investors to benefit from a sector which gives good returns irrespective of volatile economic conditions. This ETF started trading on the NYSE in October 12 this year and is the first major ETF to focus on the alcohol industry. It comes with an expense ratio of 0.75%.

First Trust ISE Water Index Fund (ETF) (NYSEARCA:FIW) is a USA-focused fund with over 97% of its portfolio allocated to USA companies. The fund tracks the performance of the ISE Water Index consisting of 36 stocks from the potable and wastewater industries. This water ETF has returned more than 26% in the last year and mainly focuses on the industrial segment with a 66% allocation. The top holdings of this fund are Xylem Inc (NYSE:XYL) and Flowserve Corp (NYSE:FLS). With $145 million of assets under management, it is not a large fund and has an expense ratio of 0.57%. Water is an essential requirement for humans but is getting scarcer by the day. This fund offers a diversified way to invest in companies which provide water related products and services. It has a good future because the demand for safe and clean water will keep on growing with an increasing global population.

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