Betting on the Farm with ETFs
Source: NASDAQ, Paul Baiocchi (6/6/11)
"For investors, the time is now and potash ETF choices have never been greater."
The bad news for consumers is that grain prices sit near all-time highs; China faces its worst drought in 50 years; and yield estimates in Europe have dropped nearly 10% due to bad weather. If the recent E. coli outbreak in Europe causes any supply disruptions or crop recalls, the pressure on food supplies will only grow.
For investors looking to hedge their own food prices, the time is now and the choices in the ETF space have never been greater. Indeed, three funds came to market in the past month, and two of them clearly add granularity to the agricultural commodities ETF market.
Apart from the new arrivals-all from Global X-the agriculture ETF sector has three equity funds with established track records—the PowerShares Global Agriculture Portfolio ETF (PAGG), Jefferies TR/J CRB Global Agriculture Equity ETF (CRBA) and the Market Vectors Agribusiness ETF (MOO).
The biggest and most well-known fund in the global agriculture segment is MOO. The fund offers investors the most liquidity in the segment and has accumulated the largest asset base—almost $5.5 billion. Clearly, the first-mover advantage has given it a leg up on competition, as it has become the cheapest fund in its class to trade. Further, MOO offers investors the most diversified portfolio, at a cost of 0.56%, the cheapest of all its competitors.
All three funds have a similar geographic and market-cap tilt, with the exception of MOO, which is the only one without exposure to Africa. MOO is the most diversified fund as it relates to sectors, with only 44% of its assets concentrated in the chemical sector vs. 60% for both CRBA and PAGG. MOO and PAGG actually provide the most direct exposure to agriculture through companies, with 25% of assets in the sector vs. 19.5% for CRBA.