Time to Take a Bite into This Exclusive Restaurant ETF?

Apart from binge eating, dining at popular restaurants now has something more to offer. Thanks goes to Big Tree Capital CEO Kevin Carter and private-label ETF service provider ETF Managers Group for introducing the first-ever ETF exclusively focused on restaurants with a catchy symbol, BITE.
 
Although restaurants attract crowd almost all year round, the launch of this ETF looks very timely particularly with the holiday season around the corner and industry fundamentals largely on the mend. Let us explore the ingredients of this niche ETF in details (read: 4 Solid Reasons to Buy Consumer Discretionary ETFs).
 
BITE in Details
 
BITE tracks the BITE Index created by Big Tree Capital. It is an equal-weighted index comprising 45 publicly traded companies in the U.S. with a market cap of at least $200 million and daily average turnover of $1 million. The index is reconstituted every six months, in June and December. The fund’s holdings include some of the renowned companies in the restaurant industry that operates a broad variety of restaurant formats raging from quick serve and fast casual to casual dining and fine dining.
 
The fund’s top five holdings include big shots like Buffalo Wild Wings Inc. (BWLD), Chipotle Mexican Grill Inc. (CMG), Carrols Restaurant Group Inc. (TAST), Panera Bread Co. (PNRA) and Starbucks Corp. (SBUX) with shares ranging from 3.05% to 2.62% as of October 28. At the same time, BITE gives nearly 2% weightage to newly opened but fast growing restaurant chain operators, such as, Shake Shack Inc. (SHAK) and Habit Restaurants Inc. (HABT). Together, the top 10 holdings occupy 26.71% of the fund’s assets, which is rather less considering that it’s based on an equal-weighted index instead of being market cap weighted.
 
BITE is a bit expensive with 0.75% in expense ratio.  
 
How Does it Fit in a Portfolio?
 
BITE focuses on an industry that is experiencing solid fundamentals despite some headwinds and is expected to benefit from the holiday season with Halloween in a few days and Christmas just eight weeks away. According to the fund managers, “the average American household spends over $2,600 a year at restaurants and eats at a restaurant more than five times a week.” So BITE is helping investors to “literally put their money where their mouth is.”
 
The restaurant industry is part of the consumer discretionary sector, which has been the best performing sector from a year-to-date view. Cheap fuel and rising income are leading to fatty wallets, which along with an improving U.S. economy, better job prospects and increasing consumer confidence are making the segment a great space to stay invested (read: Does This New Consumer Discretionary ETF Look Promising?).
 
Consumer spending, which accounts for roughly 70% of the economic activity in the U.S., edged up 0.4% in August from the prior month, per the U.S. consumer department. Further, the consumer confidence index increased to 103 in September – the highest since this January – after rising to 101.3 in August, according to the Conference Board.
 
Notably, the Restaurant Performance Index (“RPI”) that tracks the health and outlook for U.S. restaurants came in above 100 in August, despite hitting the lowest level in 11 months, according to National Restaurant Association. August was the 30th consecutive month in which the RPI remained above 100, which indicates expansion in the index of key industry indicators. In addition, restaurant same-store sales for the 2015 third quarter went up 1.5%, marking the fifth consecutive quarter of positive sales growth for the industry, per TDn2K’s Black Box Intelligence.
 
Finally, the Zacks Industry Rank for the restaurant industry is currently #75, which is in the top 1/3rd of all industries ranked. Since the outlook for industries in the top 1/3rd of all Industry Ranks or a Zacks Industry Rank of #88 and lower is ‘Positive’, it highlights the group’s near-term positive outlook. To learn more visit: About Zacks Industry Rank.
 
ETF Competition
 
Being a debutante restaurant ETF, BITE definitely gains a first mover advantage. However, there are a couple of ETFs that invests in a few major restaurant stocks. They include Dynamic Food & Beverage (PBJ) and Dynamic Leisure & Entertainment Portfolio (PEJ), both issued by Invesco Powershares.
 
PBJ follows the Dynamic Food & Beverage Intellidex Index, consisting of 30 stocks that include food and beverage manufacturers and retailers apart from restaurants companies that include Starbucks and Papa John's International Inc. (PZZA). It has an asset base of roughly $260 million.
 
On the other hand, PEJ tracks the Dynamic Leisure and Entertainment Intellidex Index, holding 30 stocks. The fund includes restaurant stocks, such as, Starbucks, Papa John's International Inc., Darden Restaurants Inc. (DRI), Cheesecake Factory, Inc. (CAKE), Jack in the Box Inc. (JACK) and Denny’s Corp. (DENN). It has amassed nearly $195 million in assets.
 
Both PBJ and PEJ are cheaper than BITE, charging around 60 bps in fees from investors per year (read: 3 Consumer ETFs to Watch on Upbeat Phillip Morris Earnings).
 
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BUFFALO WLD WNG (BWLD): Free Stock Analysis Report
 
CHIPOTLE MEXICN (CMG): Free Stock Analysis Report
 
CARROLS RESTRNT (TAST): Free Stock Analysis Report
 
PANERA BREAD CO (PNRA): Free Stock Analysis Report
 
STARBUCKS CORP (SBUX): Free Stock Analysis Report
 
SHAKE SHACK INC (SHAK): Free Stock Analysis Report
 
HABIT RESTRNTS (HABT): Free Stock Analysis Report
 
PWRSH-DYN FD&BV (PBJ): ETF Research Reports
 
PWRSH-DYN LE&EN (PEJ): ETF Research Reports
 
PAPA JOHNS INTL (PZZA): Free Stock Analysis Report
 
DARDEN RESTRNT (DRI): Free Stock Analysis Report
 
CA INC (CA): Get Free Report
 
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