Baiocchi's Top 5 ETFs For 2014

December 24, 2013

3. Global X Fertilizers/Potash ETF (SOIL | D-40)

First the bad news: This ETF has just $22 million in assets under management, and trades with 41 basis-point average spreads. Moreover, the fund is down 20 percent this year thanks to the breakdown of the Belarusian potash cartel.

The biggest players in the space—Monsanto, Agrium and Syngenta—are all down big in 2013.

The good news is the fundamental story is still intact. The world’s population is growing, and the demand for food is rising. That means that firms providing the essentials to farming are in a great spot.

Pricing pressure from the disbandment of the potash cartel is a very real threat, but companies are responding by cutting costs. This should offset the margin compression from falling prices, and the reasonable price-to-earnings multiple (P/E) of this portfolio—13.63 times trailing earnings—makes it attractive on a relative basis.

If Potash Corp’s ugly third quarter represents the bottom in this story, investors would do well to bottom pick the theme.

The portfolio currently throws off 2.7 percent in dividends, and share prices may get a boost from buybacks. It certainly is not for the faint of heart, but is an interesting way to invest long-term assets in a pocket of the global economy that should benefit from sustained global growth.

 

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