Agribusiness ETFs: Comparing All The Options

by on April 18, 2011 | ETFs Mentioned:

Stock markets have broadly come back so far in 2011, as optimism over growth in emerging nations and some portions of the developed world has outweighed geopolitical concerns in the Middle East and a nuclear disaster in Japan. While a number of sectors have led this charge higher, undoubtedly one of the most important is the business of agriculture. Companies engaged in this critical business have been surging higher as demand and prices for a number of key soft commodities have skyrocketed in the past few months. In fact, since the end of 2010, corn prices have risen close to 16% while cotton and coffee have seen their values surge by more than 35%, suggesting that the commodity boom is impacting not only staple crops like corn, but even textile-focused products and more ‘discretionary’ goods such as coffee; no single sector has been immune from these price increases. 

Due to this broad move in the sector, interest has skyrocketed for companies that can help farmers boost yields and increase profits as many analysts assume that farms will be more likely to spend on fertilizers, tractors, and other “yield enhancers” when prices are climbing. While most investors can agree that agribusiness companies make for an intriguing choice in this economic climate, there is great debate over how to obtain exposure to this surging sector [see Creative Ways To Hedge Against Global Unrest]. Currently, there are four ETFs that target the agribusiness space, each with their own unique risk and reward properties. Below, we highlight in greater detail some of the key points that investors must be aware of before choosing a fund in this category:

Market Vectors Agribusiness ETF (MOO)

This fund is by far the most popular in the agribusiness space with just under $4 billion in assets and close to 1.5 million in average daily volume. The fund focuses on large, multinational firms, and is one of the most concentrated in the space, putting close to 62% of its total assets in the top ten holdings. Despite this concentration, the fund could be an interesting play for investors seeking a relatively balanced fund in terms of U.S. vs. international exposure; MOO has roughly a 40/60 between the two groups and 55/45 if you put the U.S and Canada in one group. Beyond these two countries, the fund does offer investors decent exposure to the European agribusiness market as well, with close to 14% of total assets going towards this region with a heavy focus on Switzerland, Norway, and the Netherlands. MOO has been a pretty solid choice for investors seeking exposure to this market segment as the fund has gained roughly 10% a year since inception at the end of August 2007. More recently the fund has been a tear, posting a 25% gain over the past 52 weeks and inching up about 2% so far in 2011 [see ETFs To Play A U.S. Export Boom].

PowerShares Global Agriculture Fund (PAGG)

This PowerShares fund takes a similar approach to the sector as its larger counterpart MOO. However, PAGG charges investors a higher expense ratio and is less liquid than the more popular product from Van Eck. PAGG tracks the NASDAQ OMX Global Agriculture Index, which is designed to measure the overall performance of globally traded securities of the largest and most liquid companies involved in agriculture and farming-related activities. Thanks to this focus on liquidity, PAGG has just 40 securities in total and puts close to 75% of the fund’s assets in giant and large cap companies with only 1% in small caps. However, the fund does do a remarkable job of spreading assets out around the globe as close to 70% of PAGG’s holdings are in foreign companies. Beyond Canada, other large international markets that see a lot of investment from this fund are Singapore (8.0%) Switzerland (7.8%), and Malaysia, suggesting that the fund offers decent exposure to the booming Southeast Asia market as well as traditional agriculture mainstays in North America [compare any two ETFs with our Head-To-Head ETF Comparison].

IQ Global Agribusiness Small Cap Fund (CROP)

For investors seeking exposure to smaller companies which may have higher growth potential–but could be riskier–the relatively new CROP could make for an interesting pick. The fund focuses in on small cap companies that are engaged in the business of agriculture, holding 50 securities in total. In terms of sector exposure, the fund’s two most widely held are agriculture supplies and agricultural machinery, which make up close to 50% of the fund’s total assets. Livestock operations and crop production also make up sizable portions as well. In terms of individual holdings, the fund is made up of companies that are unlikely to be household names; Canada’s Viterra takes the top spot while American firms Tractor Supply Co and Smithfield Foods round out the top three. Investors should note, however, that they must pay for this small cap focus with one of the higher expense ratios in the space at 0.75%, tied with PAGG at the top and greater than both MOO and CRBA. Nevertheless, CROP has managed an impressive performance in its short existence, gaining more than 6% in less than a month [see IndexIQ Launches Global Agribusiness Small Cap ETF].

Jefferies TR/J CRB Global Agriculture Fund (CRBA)

If investors are still looking for large cap firms in the sector but are searching for a more concentrated approach, CRBA could be a way to go. The fund tracks the Jefferies | TR/J CRB Global Agriculture Equity Index which measures the performance of equity securities of a global universe of listed companies engaged in the production and distribution of agricultural products including grains, livestock, fertilizers, chemicals, seeds, traits and equipment. The fund holds just 35 securities in total with the top holdings going to Potash Corp of Saskatchewan and Monsanto, while putting a great deal of assets in foreign securities which make up more than 60% of the fund’s total holdings. CRBA has been slow to catch on with investors–it has just $14 million or so in assets–but has a pretty solid track record from a performance perspective [see Three ETFs To Invest Like Marc Faber].

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Disclosure: No positions at time of writing.