Betting On The Farm With ETFs

June 06, 2011

At the risk of sounding heartless, a lot of bad news recently surrounding food supplies could reap rewards for investors.

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 percent due to bad weather. Moreover, if the recent E. coli outbreak in Europe causes any supply disruptions or crop recalls, the pressure on food supplies will only grow.

Really, the only good news recently was Russia and Ukraine saying they’ll end export quotas on wheat.

But 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 (NasdaqGM: PAGG), Jefferies TR/J CRB Global Agriculture Equity ETF (NYSEArca: CRBA) and the Market Vectors Agribusiness ETF (NYSEArca: 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 this fund a leg-up on the competition, as it has become the cheapest fund in its class to trade. Furthermore, MOO offers investors the most diversified portfolio, at a cost of 0.56 percent, 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 of the three without exposure to Africa. MOO is the most diversified fund as it relates to sectors, with only 44 percent of its assets concentrated in the chemical sector, versus 60 percent for both CRBA and PAGG. MOO and PAGG actually provide the most direct exposure to agriculture through companies such as Deere or Monsanto, with 25 percent of assets in the sector, compared with 19.5 percent for CRBA.

But CRBA also provides the least concentration risk, with the fund’s top 10 holdings constituting only 50.7 percent of the fund’s assets, versus more than 58 percent for MOO and PAGG.



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