A:

There is no way to eliminate all risk from investing. If there were, investors would not be compensated for their capital. However, financial academics and professionals have devised a number of metrics for assessing risk and standard corresponding steps to minimize the risks taken to accomplish a given investment goal. Diversification and allocation are straightforward risk management tools in portfolio theory. Diversification refers to exposure to specific securities, industries, classes or other factors. Allocation refers to how well the mix of asset classes in a portfolio reflects investment needs.

Diversified portfolios are not heavily exposed to any single security, meaning that unsystematic risk has been diluted. For investors without high net worth, it is often difficult to buy enough positions to diversify a portfolio sufficiently. Exchange-traded funds (ETFs) have become a popular investment vehicle for such an audience by allowing investors to buy shares of large, diversified holdings in more accessible denominations. PowerShares Dynamic Food & Beverage ETF is the most popular ETF tracking the food and beverage industry.

If safety is an the primary requirement for an investor seeking exposure to the food and beverage industry, allocation is important. Bonds are generally considered safer investments than equities because they are senior securities in the case of liquidation, and fixed-income investments carry a promise to repay the holder at face value. Historical bond returns have lagged equity returns but have also been more stable. Importantly, bond risk is evaluated by ratings agencies such as Moody's, Standard & Poor's, and Fitch Ratings. Food and beverage industry members with outstanding investment-grade corporate bonds include Kraft Foods, Diageo, Anheuser-Busch InBev, PepsiCo, Sysco, Coca-Cola and Ambev.

RELATED FAQS
  1. What is the historic average annual return of the food and beverage sector?

    Examine the current state of the food and beverage sector, along with learning the historical average annual returns for ... Read Answer >>
  2. What are the primary risks an investor should consider when investing in the food ...

    Understand some of the various risk factors investors should consider when seeking investment opportunities in the food and ... Read Answer >>
  3. What portion of the global economy is represented by the food and beverage sector?

    Find out how much of the global economy consists of the food and beverage sector, including a breakdown in demand by geographic ... Read Answer >>
  4. How can I hedge my portfolio to protect from a decline in the food and beverage sector?

    Learn why countercyclical investments, such as precious metals, serve as the best hedge against exposure to the food and ... Read Answer >>
  5. What emerging markets are best positioned to benefit from growth in the food and ...

    Examine emerging market economies and learn which ones are currently projected to offer the highest growth rates for the ... Read Answer >>
  6. Are there leveraged ETFs that follow the food and beverage sector?

    Discover whether it is possible for investors to utilize leveraged exchange-traded funds, or ETFs, to access the food and ... Read Answer >>
Related Articles
  1. Investing

    Parched For Profits? Try Beverage Stocks

    For diversification and profit potential, add a different kind of "liquidity" to your portfolio.
  2. Investing

    Why National Beverage Is an Unlikely Buyout Target

    Shares of National Beverage (NASDAQ: FIZZ) have rallied more than 90% over the past 12 months, fueled by speculation that it could be acquired by Coca-Cola (NYSE: KO) or PepsiCo (NYSE: PEP). ...
  3. Investing

    An Introduction To Corporate Bond ETFs

    Learn about the pros and cons of these specialized ETFs, and get in on the opportunities they can provide.
  4. Investing

    How To Manage Portfolio Risk

    Follow these tips to successfully manage portfolio risk.
  5. Investing

    The Importance Of Diversification

    Without this risk-reduction technique, your chance of loss will be unnecessarily high.
  6. Investing

    SCPB: SPDR Barclays Short Term Corporate Bond ETF

    Learn about the SPDR Barclays Short-Term Corporate Bond ETF, and explore detailed analysis of the exchange-traded fund tracking U.S. short-term corporate bonds.
  7. Financial Advisor

    What Are the Pros and Cons of Fixed-Income ETFs? (BND, AGG)

    Like all investments, fixed-income ETFs have their pros and cons. But do the advantages outweigh the disadvantages?
  8. Investing

    PepsiCo Shares Jump Following Robust Q2 Earnings

    Shares of PepsiCo (NYSE: PEP) recently jumped to all-time highs after the beverage and snack maker posted strong second-quarter earnings, topped off with rosy guidance. The company's organic ...
  9. Managing Wealth

    Why and How to Diversify Beyond Asset Class

    Diversification is a must for investment portfolios but it isn't enough. Investors have to have different exposures within asset classes.
  10. Managing Wealth

    Achieving Optimal Asset Allocation

    Minimizing risk while maximizing return with the right mix of securities is the key to achieving your optimal asset allocation.
RELATED TERMS
  1. Food Industry ETF

    An exchange-traded fund that invests in food and beverage companies, ...
  2. Stock Exchange-Traded Fund (ETF)

    A Stock Exchange-Traded Fund (ETF) is a security that tracks ...
  3. ETF Of ETFs

    ETF of ETFs are exchange-traded funds (ETF) that track other ...
  4. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments ...
  6. Fixed Income

    Fixed income is a type of investment in which real return rates ...
Hot Definitions
  1. Debt/Equity Ratio

    The D/E ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders’ equity.
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.
  3. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  4. Return On Equity - ROE

    The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability ...
  5. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  6. Whole Life Insurance Policy

    A life insurance contract with level premiums that has both an insurance and an investment component. The insurance component ...
Trading Center