Pork ETF: piggy bank

In China, pigs symbolise good luck. Golden pig figurines are said to bring wealth. In recent years, real hogs have made investors rich. Pork prices and shares in producers and feedstock suppliers have soared. Indeed, this group has become an asset class of its own. Inevitably, an exchange traded fund now covers it.

China is the world’s largest market for pork, consuming more than half of the world supply. Pork plays a central role in cuisine and accounts for about an eighth of the consumer inflation basket. Pork prices have soared since African swine fever started wiping out supplies.

China already has a hog futures market that trades contracts for live pig deliveries. However, retail investors desiring exposure through futures must settle in physical hogs — 16 metric tons or about 130 pigs for one contract — at the expiry date. Awkward.

An ETF tracking the local pork sector launched on the Shenzhen Stock Exchange on Friday. Penghua’s fund will be followed by several similar vehicles. They should give investors easy and low-cost access to fat profits from the whole sector.

The new hog ETF covers a range of pork-related companies including animal vaccine and feed makers. Hog producers such as Muyuan Foods are included too. Its share price is already up a third this year after last year’s industry-wide rally. The shares have been less volatile than spot hog prices.

Investors can benefit in different ways. The ETFs allow them to take a long-term view on this part of the agricultural sector. Better trading liquidity and low management fees should also suit speculators who want to take advantage of the swings in local pork prices, for example by anticipating rises ahead of main holiday seasons.

Moreover, ETFs can help hedge against growing fears of inflation. In recent years, pork price volatility has had a unique and outsized influence on this. Pork price increases have outpaced rises in the cost of other goods. They say you can use every part of a pig apart from the squeals. These ETFs should be just as multipurpose.

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