Out To Dinner: A Restaurant ETF Finally Debuts

Talk about validation. Several years ago, the fact that a dedicated restaurant exchange-traded fund did not exist was publicly bemoaned. That changed Wednesday with the debut of The Restaurant ETF BITE.

The Restaurant ETF was launched by Big Tree Capital's Kevin Carter and ETF Managers Group, a provider of bespoke services to the ETF Industry.

The new fund “tracks The BITE Index, an equal-weighted index of all restaurants that are publicly traded in the United States with a market cap of $200 million or greater and $1 million of daily average turnover. It is rebalanced semi-annually in June and December and is currently comprised of 50 companies,” according to a statement.

BITE's Methodology

As a weighting methodology, equal weight has recently received increased attention, because it is generally seen as one of the forefathers of the now ultra-hot smart or strategic phenomenon.

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More importantly, equal-weight indexes and ETFs have received increased notoriety because many deliver notable out-performance of cap-weighted rivals.

As it pertains to BITE, equal weighting makes sense; a cap-weighted restaurant ETF would have been dominated by the likes of McDonald's Corporation MCD, Chipotle Mexican Grill, Inc. CMG, Starbucks Corporation SBUX and Yum! Brands, Inc. YUM.

In theory, a cap-weighted restaurant ETF could feature a combined weight of 50 percent or more to those stocks, but in reality, BITE's combined weight to those restaurant behemoths is just 10.2 percent.

Allocation

As of the end of the third quarter, the top 10 holdings in BITE's underling index included Buffalo Wild Wings BWLD, Chipotle, McDonald's, Starbucks and Dave & Busters Entertainment, Inc. PLAY.

BITE also holds shares of newly public restaurant operators, including Shake Shack Inc SHAK and Habit Restaurants Inc HABT.

BITE's Place In The Space

Although BITE fills an obvious void in the industry ETF space, has a memorable ticker and clear first mover advantage, the new ETF has utility on other fronts as well.

For example, it can be argued that during a year in which the consumer discretionary group is the best-performing S&P 500 sector, BITE's debut is well timed. This much is clear: Americans are eating out more.

“The percentage of income that Americans spend on food outside the home has been steadily growing over the last 150 years,” said Kevin Carter, founder and CEO of Big Tree Capital, the creator and owner of The BITE Index, in the statement.

He added, “The average American household spends over $2,600 a year at restaurants. BITE gives investors the ability to literally ‘put their money where their mouth is,’ allowing them to invest in conjunction with their own spending habits.”

BITE charges 0.75 percent per year, or $75 for every $10,000 invested.