Agribusiness ETFs Head-To-Head: MOO vs. PAGG

by on January 11, 2010

After soaring to record highs in early 2008, many agricultural products saw their prices fall sharply over the next 18 months. However, the outlook for the agribusiness sector has improved significantly, and many investors are increasingly bullish after a report of nearly 20% food price inflation in the world’s most populous democracy, India. The legendary commodity investor Jim Rogers recently commented on the prospects of the farming industry, saying, “If you can tell me something else where the fundamentals are so attractive…I’d be happy to put my money there, but I don’t know of any other place,” suggesting that agribusiness investments may have been overshadowed by the current market rally and deserve a closer look.

As world population continues to grow — some estimate that 1.1 billion more people will be on the Earth by the end of the decade — demand for agricultural commodities seems poised to experience ongoing organic growth. Beyond population expansion, massive ethanol programs in the U.S. and Brazil that turn crops into fuel could further increase demand. An anticipated 19 billion gallons of ethanol will be produced in 2010, diverting significant amounts of arable land to non-edible purposes which could further drive up the price of food.

For these reasons, as well as any adverse ‘climate change‘ effects which destroy crop supplies, the next ten years could become the decade of agribusiness, as farmers seek to harvest more crops on less land for more people. For ETF investors looking to gain exposure to this risky but potentially rewarding sector, there are two main options: the Market Vectors Agribusiness ETF (MOO) and PowerShares Global Agricultural Fund (PAGG). Below, we take a look at how these funds stack up.

Holdings And Related Indexes

The holdings for these funds are remarkably similar; both funds hold the same five stocks in their top five holdings and both have roughly thirty percent of their assets in the consumer goods sector and seventy percent in the industrial materials segment. PAGG is slightly more concentrated, holding 42 stocks compared 46 for MOO. MOO’s top five holdings account for about 40% of total assets, slightly less than the PowerShares fund. PAGG edges out MOO in asset turnover, suggesting that its holdings stay in the fund for a longer period of time. Both ETFs are tilted towards large cap stocks, with an average market capitalization of just under $10.3 billion for PAGG and about $12 billion for MOO.

Both ETFs maintain global portfolios, although MOO has a much higher concentration of U.S.-based equities (almost 50%) than PAGG (about 29%). Beyond the U.S., Canada, Singapore, Switzerland, and Malaysia make up material allocations.

PAGG follows 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. The Index is rebalanced quarterly using a modified, market-cap-weighted methodology. MOO tracks the DAXglobal Agribusiness Index, which provides investors with exposure to publicly traded companies worldwide that derive at least 50% of their revenues from the business of agriculture.

Performance And Expenses

Over the past 52 weeks, both funds have performed very well, with PAGG just barely edging out MOO (54.7% to 53.1%).  PAGG does, however, have a higher expense ratio, coming in at 0.75% compared to MOO at 0.59%. MOO is also a much more liquid, widely held fund with over $2 billion in assets and average daily volume of more than 750,000 shares, compared to less than $100 million and about 40,000 shares for PAGG.

Verdict

While both funds offer investors exposure to agricultural production stocks, there are a few key differences that investors should keep in mind when deciding which fund to purchase if they are bullish on the agribusiness sector. If liquidity and low expenses are primary concerns, MOO may be the best bet. For investors looking to minimize exposure to U.S. markets and underlying asset turnover, PAGG may be a more attractive option.

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Disclosure: No positions at time of writing.