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Summary Managed by Factor Advisors and Penserra Capital Management, BITE is the first ETF to track publicly traded U.S. restaurant companies. BITE has an expense ratio of 0.75%, which is close to the average expense ratio of equity funds. Consumers are increasing their spending on eating out and compared to grocery stores, currently Americans spend almost the same amount in restaurants and bars. The equal weighted approach of the Restaurant ETF offers investors an opportunity to gain exposure in this secular trend of increased spending on dining out. A new ETF called the Restaurant ETF (NASDAQ: BITE ) was launched in October. It would track around 50 top publicly traded companies involved in the restaurant business. Managed by Factor Advisors and Penserra Capital Management, it would follow an equally weighted index created by the Chief Executive of Big Tree Capital, Kevin Carter. Companies Included in the Restaurant ETF Currently, 46 U.S. based publicly traded companies are included in the Restaurant ETF. Although some of the companies in the Restaurant ETF have businesses overseas, it did not include any foreign company. Almost all the large brand restaurants are included in the Restaurant ETF. For example, quick service restaurants like Starbucks (NASDAQ: SBUX ), fast casual niche restaurant like Chipotle (NYSE: CMG ) can be found in the ETF along with fine dining restaurant like Ruth’s Chris (NASDAQ: RUTH ). The Restaurant ETF is an equal weighted index, which means all the companies in the index would roughly have the same stakes. The index would be re-balanced every six months in order to adjust the allocations. Right now, almost all companies have a similar percentage of holdings in the Restaurant ETF. For example, McDonald’s (NYSE: MCD ) and Starbucks has almost same allocations, 3.01% and 2.95%, respectively. However, smaller companies like Arcos Dorados (NYSE: ARCO ), that mainly operates and franchises McDonald’s restaurants in the Latin American market, have only 1.35% holdings in the index. Other smaller restaurant companies like Kona Grill (NASDAQ: KONA ), that has a market capitalization of only $183 million, got a 1.88% allocation. The Restaurant ETF currently has an expense ratio of 0.75%. According to the Trends in the Expenses and Fees of Mutual Funds, 2012 report, the average expense ratio of equity fund fell to 0.77% in 2012. Hence, we can say that the expense ratio of the Restaurant ETF is near the average. Why are We Excited about the Restaurant ETF? Just like most Americans, we like eating out, a lot. According to Rasmussen Reports, 58% of Americans eat out at a restaurant at least once a week. The telephone survey found that 14% actually goes eat out up to three times a week! However, compared to eating at home, the same food costs much higher in restaurants. That’s why, although most people only eat out a few times a week, according to the U.S. Department of Agriculture, 31.5% of all food related expenses goes to pay for services provided by food service establishments, a.k.a. restaurants. (click to enlarge) Figure 1: Spending on Food at Home vs. Food Away from Home (1869 – 2013) Source: United States Healthful Food Council The prospectus of the Restaurant ETF mentioned since 1995, the amount spent in restaurants and bars has slowly increased and in 2015, people are spending almost the same amount in restaurants and bars compared to what they spend in grocery stores. This habit of frequently eating out is one of the reasons why In 2015, the Dow Jones U.S. Restaurants & Bars Index delivered a 20.5% return compared to the 11% return delivered by the S&P 500 Consumer Discretionary Sector . Conclusion The Restaurant ETF offers investors an opportunity to gain exposure in one of the oldest businesses in the world. As the U.S. urbanized over the last 200 years’ it prompted people to eat out more and currently people in the U.S. are spending almost the same amount on eating out as they are spending on their groceries. We believe the equal weighted approach of the Restaurant ETF would enable a smaller restaurant company with surging sales to have the same impact on the ETF as a $100+ billion worth company like McDonald’s. Hence, there is a good possibility that investors would be able to have a higher upside potential by investing in the Restaurant ETF under current economic circumstances when the market is in a bullish trend for last several years. However, investors should keep an eye on overall macroeconomic indicators such as the consumer sentiment , as during uncertain economic climates, the first and most obvious place to cutback would be the eating out category in the household budget. Scalper1 News
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