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Kraft Food Buyout Put These ETFs in Focus - ETF News And Commentary

Sweta Killa

Earlier today, the Brazilian multi-billion dollar private equity firm 3G Capital announced that it will acquire the stressed U.S. packaged food giant Kraft Foods Group (KRFT). The firm will merge the Velveeta cheese and Oscar Mayer meats maker with the ketchup maker H.J. Heinz, which it acquired two years ago for $23.2 billion in collaboration with Warren Buffett’s Berkshire Hathaway.

Under the terms of the deal, Kraft shareholders will receive one share in the combined company for each share of Kraft and a special cash dividend of approximately $10 billion or $16.50 per share. With this, Kraft shareholders will have a 49% stake in the combined company while Heinz shareholders will have a 51% stake. The combined company will result in annual savings of $1.5 billion by the end of 2017 (read: all the Consumer Staples ETFs here).

The transaction would create the fifth largest food and beverage company in the world with annual revenue in excess of $28 billion. Notably, the merged entity will be North America's third-largest food and beverage company. The merger is pending approval from Kraft shareholders and regulatory bodies and is expected to close in the second half of the year.

The merged entity will be known as Kraft Heinz Co. and will hold a portfolio of strong brand names – Heinz, Kraft, Oscar Mayer, Ore-Ida and others.

The deal was quite expected as Kraft Foods has been surviving to revive its sales and profits for months. This is because the U.S. processed food industry has been struggling with rapidly changing consumer tastes and habits. Americans have become more health conscious and are looking for healthier organic and fresh foods. Further, a strong dollar and global economic weakness are eating away the profit margins of Big Foods, thereby hampering their future growth (read: Can U.S. Dollar ETFs Continue to Surge in 2015?).

This has opened up opportunities for the greedy 3G Capital, which is known for buying bloated consumer companies and is the king of food brands. It bought fast-food restaurant Burger King in 2010 and coffee-and-doughnut chain Tim Hortons last year.

The announced deal has been another major revolution in the food industry landscape.  Shares of Kraft jumped 16.5% in the aftermarket hours yesterday when the news of the talk appeared on Wall Street Journal. Today, the stock shot up 35% in pre-market trade after the announcement of the deal.

ETFs in Focus

Given this, ETFs having decent exposure to Kraft Foods are in focus for the coming days and investors should take a closer look at these funds. For them, we have highlighted three ETFs in detail below:

PowerShares Dynamic Food & Beverage Fund (PBJ)

This product offers exposure to the stocks that are engaged in the manufacture, sale or distribution of food and beverage products, agricultural products and products related to the development of new food technologies. It follows the Dynamic Food & Beverage Intellidex Index and holds 30 stocks in its basket. Kraft Food takes the eighth spot in the basket with 4.69% of assets (read: 3 Sectors ETFs That Should Thrive On Low Oil Prices).

Packaged food product companies make up nearly 37% of the assets, followed by double-digit allocation to food retail, agriculture farming & fishing, restaurants, food distributors and beverages. The fund appears quite rich with AUM of $254.5 million and average daily volume of more than 102,000 shares. It charges 61 bps in annual fees from investors. The product has added 4.4% so far this year and has a Zacks Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

Guggenheim Spin-Off ETF (CSD)

This ETF offers target exposure to the U.S. companies that have been spun off within the past 30 months by tracking the Beacon Spin-off Index. The fund has amassed $5422.7 million in its asset base while sees moderate volume of around 63,000 shares a day. Expense ratio came in at 0.66%. Holding 40 stocks in its basket, Kraft Foods occupies the ninth position with 4.38% share.

From a sector look, consumer discretionary and financials take the top two spots with over 20% each while industrials, health care and information technology round off the next three with a double-digit exposure each. The fund has added 5% in the year-to-date timeframe.

First Trust US IPO Index Fund (FPX)

This ETF follows the IPOX-100 U.S. Index and focuses on 100 largest and most liquid U.S. IPOs. It has accumulated $607.7 million in AUM and charges 60 bps in fees a year. Volume is moderate as it exchanges around 80,000 shares in hand on average (read: Will IPO ETFs Continue to Thrive in 2015?).

In total, the fund holds 100 securities with KRFT taking the fifth spot with 3.17% allocation. The product has a nice mix of sectors, with the top four being consumer discretionary, information technology, health care and energy. It has gained 7.2% so far in the year.

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KRAFT FOODS GRP (KRFT): Free Stock Analysis Report
PWRSH-DYN FD&BV (PBJ): ETF Research Reports
GUGG-SPIN-OFF (CSD): ETF Research Reports
FT-IPOX 100 (FPX): ETF Research Reports
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