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Tobacco Merger News Boosting Consumer Staples ETF

Friday, October 21, 2016 13:09
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shredded-tobaccoToday brings news of multiple potential tobacco mega mergers, which placed attention to a handful of major consumer-focused exchange traded funds with large tobacco exposure.

The first piece of news involves a merger of British American Tobacco and Reynolds American, which “would create the largest publicly traded tobacco company and put brands such as Lucky Strike and Camel under the same roof.”

Forgive me for chuckling every time I hear “Lucky Strike” because I think about Don Draper and his bunch from Mad Men, but headlines like this one from today should not be taken lightly by ETF investors. A side note of this proposed transaction is that industry analysts are speculating on another potential mega deal.

Rumors are making the rounds that MO and PM — which were split into two separate companies back in 2008 — could once again become one company, in what to us feels like a regulatory environment that does not want to hear the term “anti-trust.” MO stock is up over 2.5% today while PM is up about 0.5% on the news of the potential consolidation in the Tobacco space, which of course encompasses more than just standard cigarettes at this point.

The tobacco world now also covers “E-Cigarettes,” and perhaps one day will also include Marijuana and other smokeable products. And all judgment aside for any consumer’s habits, an interesting “ETF Fact” revealed itself to us that runs in tandem with these headlines is the fact that the largest “Consumer Staples Equity” ETF, XLP (SPDR Consumer Staples Select, Expense Ratio 0.15%) has a combined >14% weighting to PM (#3 weighting) and MO (#4 weighting) combined.

BTI stock in the meantime is getting hammered on the headlines this morning, as the stock is off over 6% on very heavy trading volume, and two lesser known PowerShares funds ADRU (PowerShares BLDRS Europe Select ADR, Expense Ratio 0.30%, 3.56% weighting) and ADRD (BLDRS Developed Markets 100 ADR, Expense Ratio 0.30%, 2.95% weighting) have noticeable weightings to the stock. The target of BTI here, RAI, is up nearly 13% today also on very heavy trading volume and this particular stock has a noticeable 2.68% weighting in XLP, and an even more eye opening 4.10% weighting in FXG (First Trust Consumer Staples AlphaDEX, Expense Ratio 0.67%). We don’t often think of “Tobacco” and “Consumer Staples” in the same train of thought, but ETF compositions have taught us something new today.

Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch
paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.

Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.

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