What is it?
The food sector is comprised of companies involved in the production and distribution of food and beverages, along with alcohol and cigarettes. Farms and food manufacturing, processing, and storage facilities make up an important component of the food sector supply chain.
Why is it important?
The food sector is important for the simple reason that people need to eat and drink to survive, and that will never go out of fashion. The food sector accounts for approximately 5% of GDP in most nations and represents 7.4% of the S&P 500 index. Performance in the food sector is often a useful metric for economic health, inflation, and consumption within the economy.
- Campbell Soup
- Constellation Brands
- General Mills
- S&P 500 Food Products
- Powershares Dynamic Food & Beverage Portfolio
- iShares S&P 500 Consumer Staples
When does it do well/badly?
As a traditionally defensive sector, food tends to not be overly sensitive to fluctuations in the business cycle. This means that in times of economic weakness, it will generally decline slightly, but still outperform other cyclical industries in relative terms. When the economy is booming, it will do well, but be outperformed by the more explosive high-growth sectors, like technology.
Why should I invest?
Food stocks make an excellent addition to a portfolio’s baseline returns, especially in times of market uncertainty or weakness. Having exposure to the food sector is a great way to offset some of the risk of holding more volatile instruments like tech stocks or crypto assets. That way, you shield yourself from any major cyclical events that could hurt your performance.