Surprising Standouts Among Agribusiness ETFs

by on March 18, 2013 | ETFs Mentioned:

Though certain commodity producers have not fared too well in recent years, one particular sector has exhibited tremendous growth and strength: agribusiness. This industry has benefited not only from the most recent drought in the summer of 2012, but also from the rapid growth of the world population and the further development of emerging economies. And thanks to the evolution of the ETF industry, investors now have several options to tap into the world of agribusiness [Download Free Report: How To Buy The Right ETF Every Time].

Since many of these products are still relatively young, agribusiness funds have been somewhat slow to gain significant attention from investors. A look under the hood of these funds, however, reveals several factors (and surprises) investors should certainly consider.

A Compelling Balance Between Risk and RewardAgribusiness ETFs

Since the performance of agribusiness securities are greatly dependent on the price of the commodities produced, it is common for investors to associate these stocks with relatively high levels of risk, as fluctuations in agriculture futures are frequent and sometimes significant. However, the 200-day volatility of agribusiness ETFs ranges from 11-13%; compare this to SPY‘s metric of 11.99% and it is quite clear that the risk profiles are more similar than one might expect. In addition, these products have been able to deliver compelling returns in recent years, with one fund in particular standing out from the rest [be sure to also check out the Futures Free Commodity ETFdb Portfolio].

The chart below highlights four Agribusiness ETF, revealing the differences between volatility, performance and expense ratios:

  • Market Vectors Agribusiness ETF (MOO, B)
  • Global Agriculture Portfolio (PAGG, C+)
  • IQ Global Agribusiness Small Cap ETF (CROP, C)
  • MSCI Global Agriculture Producers Fund (VEGI, C+)

Though iShares’ MSCI Global Agriculture Producers (VEGI) is the smallest and least-traded fund of the group, it has generated the highest return over the trailing one-year period. It’s worth noting that VEGI is also the cheapest product on this list, with its expense ratio coming in at a mere 39 basis points. Another surprising standout is CROP, which invests in riskier small-capitalization firms; it currently exhibits the lowest 200-volatility metric, though it also has the lowest return. As such, those looking to dive into the agribusiness space should certainly take a look at all the options, finding an appropriate balance between performance and risk.

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Disclosure: No positions at time of writing.