First Trust NASDAQ Food and Beverage (FTXG) is an exchange-traded fund (ETF) that tracks the food and beverage consumer industry. This fund was given an overall rating of 0.25 planets because there are no initiatives for this fund directly to contribute to a cleaner, more sustainable future. The holdings within this fund all directly or indirectly contribute to climate change, food insecurity, food waste, etc. in some form or another. With the addition of an ESG category into the selection of the holdings, then FTXG could potentially receive a higher rating.
Created in September of 2016, the First Trust NASDAQ Food and Beverage (FTXG) Exchange-Traded Fund (ETF) is a liquidity-selected fund, which selects funds based on the rate of flow of money that is involved in US food & beverage companies, from production to supply. To be considered a holding under this fund, the holding must have strong growth, attractive value, and low volatility. FTXG has 30 holdings that can be classified as producers, manufacturers, or distributors of food with all of these investments in the US. The top 10 holdings, as of March 4, 2022 can be seen in the table below:
FTXG has a consumer good portfolio style with a range of types of companies within the top 10 holdings. Such as Coca-Cola, which is a household name and Corveta, which is just a plantation that captures and produces foods. FTXG is non-diversified, with a portfolio focused primarily in food production, which is typically risker. The fund’s total net assets is $9.3 million. The price earning ratio is 16.88, which is a measure to determine if the investment is valued properly. According to Morningstar, FTXG has 1/5 globes, an extremely low score, a carbon risk score of 12.44, and high environmental and social ESG risk scores (10.57 and 11.35, respectively). The fossil fuel involvement is 0%, which at face value sounds great, but it just means that none of the holdings within this fund directly invest in, for example, the extraction or production of coal. Shockingly, the MSCI ESG rating is 9.21/10 AAA, which is extremely high. What is setting this MSCI ESG rating apart from previously low ratings that are directly involved in promoting a greener future, is that the low volatility, yield, and small size of these companies are highly ranked. It’s hard to believe that these companies genuinely have a high MSCI ESG rating due to the environmental impact of mass production of food and waste.
This section was given an overall rating of 0.15 because the MSCI ESG was higher than expected. However, I am skeptical of the calculation behind this score and would still consider this fund unsustainable.
The portfolio manager, First Trust, is responsible for selecting which companies or firms that FTXG invests in. As mentioned before, the three criteria that is considered when considering the type of portfolio this fund holds is the following: volatility - trailing 12-month price fluctuation, value - cash flow to price, and growth - the 3,6,9, and 12 month average prices appreciation. This is the only information available on how these decisions are made. The top 10 holdings are well known companies that have reached an international audience, so it is understandable why these companies all abide by the three criteria. To challenge this fund, I would implement a fourth criteria of ESG. That way, the fund is more diversified in how it considers what’s important.
This section was given an overall rating of 0 planets because there are no initiatives to alternate this fund into one that selects funds with a greener future in mind.
Since FTXG is a passive index fund, it tracks the NASDAQ US Smart Food & Beverage Index. Just like how the portfolio manager, First Trust, selects funds, this index does the same. To further critique the impact this fund is making by choosing these companies, I evaluated some previous Voiz reviews on these companies. Ibrahim Ibn Abdul-Wajid wrote a review on Coca-Cola and gave this company an overall rating of 0.25 planets. Coca-Cola tried to account for their total water footprint, but knew that it would be too much and look bad, so they only focused on the amount of water that’s going into the physical coke bottle itself, released the report and made it seem as though it wasn’t that much, but turns out that they weren’t accounting for up to 90% of the water consumption. Kavya Manoj gave Heinz ketchup an overall rating 0.25 planets due to the companies lack of transparency about the source of base ingredients and their use of pesticides to promote tomato production. Natalya Yakusheva reviewed Heinz Beanz and this product was also given a rating of 0.25 planets due to the lack of transparency about their production process, their emission levels, and names of their suppliers.
This section was given an overall rating of 0 planets because this fund is indirectly contributing to a less greener future because of its support in these companies that are directly causing environmental damage.