Investing in Restaurant ETFs

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People love going out to eat at restaurants. Before the COVID-19 pandemic, more than half the country reported eating out two or three times a week. Our love for dining out has helped drive a more than 70% increase in spending at restaurants and bars over the past decade. While restaurant sales took a hit in 2020, they bounced back in 2021 and should keep growing in the future.

The industry’s recovery and long-term growth prospects bode well for restaurant stocks. However, the restaurant industry can be challenging since the economy, inflation, labor market, and other external and internal factors can impact performance.

Because of that, investors looking to play the long-term upside potential of the restaurant sector might want to consider taking a broad-based approach by investing in exchange-traded funds (ETFs) focused on the industry. Here’s a closer look at several ETFs with high concentrations of restaurant stocks.

Image source: Getty Images.

3 top restaurant ETFs

Investors don’t have a lot of restaurant ETF options. Only one ETF focuses solely on the industry. Others hold restaurants along with other food stocksbeverage stocks, and consumer discretionary stocks. Because of that, investors need to carefully review restaurant-related ETFs to determine the best fit for their situation. The top restaurant ETF options are:

Restaurant ETF

Ticker Symbol

Market Value/Assets Under Management (AUM)

ETF Description

AdvisorShares Restaurant ETF

(NYSEMKT:EATZ)

$5.6 million

The only pure-play ETF in the restaurant sector.

Invesco Dynamic Leisure and Entertainment ETF

(NYSEMKT:PEJ)

$1.3 billion

This ETF holds companies engaged in the design, production, or distribution of goods or services in the leisure and entertainment industries.

The Consumer Discretionary Select Sector SPDR Fund

(NYSEMKT:XLY)

$19.2 billion

This ETF holds shares of consumer discretionary companies in the S&P 500 Index.

Data source: ETF websites. NOTE: Market value/AUM as of August 23, 2021.

Here’s a closer look at these restaurant ETFs.

AdvisorShares Restaurant ETF

The AdvisorShares Restaurant ETF, launched in 2021, is the only ETF solely focused on investing in the restaurant and food industry. The ETF’s holdings include restaurants, bars, pubs, fast-food, takeout facilities, and food catering services. This ETF also features a creative ticker symbol (EATZ) and a catchy mission to allow an investor to “put your money where your mouth is.”

As of mid-2021, this ETF held more than 30 restaurant stocks, led by the following five:

Because of its short operating history, this ETF is quite small. That makes it riskier than other ETFs with restaurant holdings. On a positive note, it has a reasonable ETF expense ratio of 0.79%. 

Invesco Dynamic Leisure and Entertainment ETF

The Invesco Dynamic Leisure and Entertainment ETF holds 30 leisure and entertainment companies, including those engaged in designing, producing, or distributing goods and services. As a result, the fund doesn’t focus on restaurants. It had the following sector allocation in mid-2021:

  • Hotels, restaurants, and leisure: 49.5%
  • Entertainment: 21%
  • Media: 14.4%
  • Food and staples retailing: 10%
  • Internet and direct marketing retail: 2.6%
  • Interactive media and services: 2.5%

However, it’s worth noting that three of its top five holdings were restaurants: 

Further, it has a fairly reasonable expense ratio of 0.69%. Overall, the fund is a larger, more diversified way to invest in the entire entertainment and leisure industry than focusing solely on the expected growth in restaurant spending.

The Consumer Discretionary Select Sector SPDR Fund

The Consumer Discretionary Select Sector SPDR Fund allows investors to focus on the consumer discretionary sector of the S&P 500 Index. These companies depend on consumer spending. The ETF had more than 60 holdings in mid-2021 in the following industries:

  • Internet and direct marketing retail: 24.8%
  • Specialty retail: 20.7%
  • Hotels, restaurants, and leisure: 19.2%
  • Automobiles: 17%
  • Textiles, apparel, and luxury goods: 6.2%
  • Multiline retail: 5.1%
  • Household durables: 4%
  • Auto components: 1.4%
  • Distributors: 1.3%
  • Leisure products: 0.3%

Because of its diversification, this ETF doesn’t offer as much exposure to the restaurant sector as the other ETF options. However, it does count two in its top 10 holdings: McDonald’s (4.5%) and Starbucks (3.4%).

On the plus side, this large ETF boasts a low expense ratio of 0.12%, making it a low-cost way to invest in overall consumer spending growth, including restaurants.

Consider what makes the most sense for your situation

Investors have limited restaurant ETF options since only one focuses on the sector, while others offer a more diversified approach that includes other consumer discretionary companies. Consequently, investors who want exposure to the restaurant industry need to decide which ETF best fits their approach. Another option to consider is creating your own restaurant ETF by investing small amounts in a basket of your favorite restaurant stocks. The general idea is to find the way you’re most comfortable with investing in restaurant stocks.