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2 Free ETF Ideas

Drew Voros

As we come off one of the driest summer spells for ETF launches in years, maybe the industry has started hitting the wall for fresh ideas beyond marijuana and bitcoin products (read “Summer ETF Launch Drought Lingers”).

So, I’m happy to offer up some new product thoughts, as I’ve done before (read “ETF Ideas Free For The Taking”). They’re a mix of legitimate, fanciful and quite possibly plain bad ideas, but here they are for the taking—and with accompanying available tickers!

 

US Grocery Store ETF (FOOD)

One of the most overlooked parts of the food industry is the U.S. grocery store business, generating some $650 billion a year. It’s easy to forget that some of the world’s largest companies like Amazon (Whole Foods) and Walmart are huge players in this space.

The collective market cap of the top 10 public grocery store companies—a list that includes Costco, Kroger, Sprouts, Weis Markets, SuperValu, Ingles Markets, Smart & Final and Natural Grocers—offers a good base of multibillion and hundred-billion-dollar operations that also represent all parts of the country.

The only real pure-play food ETF, the Invesco Dynamic Food & Beverage ETF (PBJ), attempts to pick winning stocks in the food and beverage segment using quant screens. The $71 million PBJ is small, bringing with it a pricey 0.63% expense ratio, and invests in only two grocery store companies: Simply Good Foods and Kroger.

 

(Use our stock finder tool to find an ETF’s allocation to a certain stock)

 

Grocery stocks are not overlooked by ETFs as a whole. They are well-represented in the consumer staples sector. Costco stock, for instance, is owned by 195 ETFs, holding 32 million shares, which represents $8.7 billion of Costco’s $120 billion market cap.

But there has not been an effort to park all the major grocery store stocks in one single, exclusive basket.

Beyond the 10 grocers mentioned above, there are many other public grocery stocks that could be used in an index or active model, as well as other retailers who sell groceries but generate more revenue from general merchandise, such as Target and The Dollar Store.

 

US Grocery Store Sales Over From 1992 to 2017 (in billions U.S. dollars)

Source: Statista

 

21st Century Sportsbook ETF (BET)

One year ago last May, the U.S. Supreme Court issued a ground-shaking ruling on sports betting. The justices ruled each of the 50 states could decide whether to allow sports betting, opening the door for what could be a major revenue stream for gambling companies and state tax coffers for decades to come.

State reaction to the ruling runs the gambit, but in the 14 months since the ruling, seven states have legalized sports betting and began operations. In addition, Iowa, Illinois, Montana, Indiana, New Hampshire and North Carolina all legalized sports betting this year

Nevada has been exempted from this turn of events since it had already approved sports betting before 1992, when a new federal law banned states from authorizing sports betting. That law, the Professional and Amateur Sports Protection Act of 1992, was overruled by the Supreme Court last May.

Since May 2018, the money has been quickly rolling in to those new sports-betting states. This table and information from LegalSportsReport.com shows that phenomenon. Note that:

Handle: Amount wagered over the time period

Revenue: Amount of money kept by sports books out of the amount wagered

Hold How much revenue sportsbooks keep as a function of handle

Tax revenue/state share: Taxes collected at state level; or revenue realized by the state if it runs sports betting through a fixed-share setup

Credit: LegalSports.com

 

ETF Recipe?

How do you create an ETF on the back of this? Public gambling companies like MGM and Caesars are already all-in with physical sport books and services to help states or other smaller operators start.

But what’s really going to drive revenue is mobile sports betting. No need to go anywhere but your phone (or video gaming console), and that’ll open a tidal wave of revenue to those gambling companies willing to embrace the 21st century.

Placing bets through a phone app is going to unleash an untapped marketplace that had nowhere to go.

This fund would need an active manager to be more effective regarding the quick change that’s currently happening in this space, recognizing companies like MGM and Caesar aggressively going after the digital space. Other companies like Wynn, Las Vegas Sands and Churchill Downs are quickly building similar operations, as well as some smaller companies looking for profit margins in digital wagering.

Gaming Wild Card

But another wild card to throw in the mix—maybe not now, but soon—is video gaming companies that could start offering betting services just like gambling companies of today. The technology is there for one-on-one wagering, tournament teams, as well as to see the world’s top video game players carrying similar odds to those of tennis players and golfers.

Adding video game companies that provide betting services through a console would be a nice diversifier from the old-school gaming companies.

It won’t be long before the MGMs and Caesars of the gambling world start posting odds on who will win next year’s Fortnite World Cup. But consider this: This single gaming cup currently offers the largest single championship payout in any physical sport—$3 million, which was won by a 16-year-old a few weeks ago and watched digitally by millions. Imagine capturing that market through an ETF!

I would love to hear some of your new ETF ideas. Shoot me a line.

Contact Drew Voros at dvoros@etf.com

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