IndexIQ Debuts Small-Cap Agribusiness ETF

March 22, 2011

IndexIQ serves up a small-cap complement to Van Eck’s MOO.

IndexIQ, the Rye Brook, N.Y.-based ETF provider known for its hedge-fund replication strategies, launched a global agribusiness ETF designed to tap into rising food prices and the alternative energy story through a small-cap security.

The IQ Global Agribusiness Small Cap ETF (NYSEArca: CROP) will join the likes of Van Eck’s $3.8 billion Market Vectors Agribusiness ETF (NYSEArca: MOO), which IndexIQ described as a complement to its new product. CROP costs 0.75 percent, while MOO costs 0.56 percent.

IndexIQ said the two funds have little overlap, with CROP’s portfolio focused on smaller companies in crop production, supplies and logistics, while MOO owns larger companies that are in the agricultural chemicals and operations sectors.

“CROP can be used as a complementing strategy to a large cap fund or it can be a good entry point to an investor looking to get into this market,” Kevin DiSano, IndexIQ sales manager, said in a conference call. “CROP is a package of convenience to access an underrepresented part of the market.”

The investment thesis behind CROP is the growing imbalance between food production and a growing global population. The trend is the most rapid rise in food prices in decades, and is showing no sign of abating any time soon, Sal Bruno, IndexIQ chief investment officer, said during the call.

“Small caps are better positioned to see growth stemming from the projected imbalances in supply and demand,” Bruno added.

The Case For Small-Caps

Companies with smaller capitalizations are often undervalued relative to larger names, while providing more “pure play” exposure to the market, Bruno noted.

What’s more, the small-cap side of agribusiness provides higher dividend yields while showing lower volatility than the large-cap segment as well as the broad equity market, DiSano added.

CROP caps each sector allocation at 25 percent of the portfolio. It owns securities from some 14 countries to maximize diversification. Its top holdings include Canada’s Viterra, the U.S.’ Tractor Supply, Netherlands-based Nutreco, Spain’s Ebro Foods and Brazil’s Cosan.

By comparison, its large-cap competitor MOO is heavily allocated to chemicals, which represents more than 44 percent of its sector allocation. Potash Corp., John Deere and Monsanto top the fund’s holdings.

CROP’s benchmark, the IQ Global Agribusiness Small Cap Index, is calculated by Standard & Poor’s. It is float-adjusted, market-cap weighted and has 52 securities with a minimum average market capitalization of $150 million. The index is rebalanced quarterly.

Futures-Based Competition

Other agriculture-focused funds such as the $3.8 billion PowerShares DB Agriculture Fund (NYSEArca: DBA), takes an entirely different approach to the space: DBA invests in agricultural futures contracts.

Also, the nearly 1 ½-year-old Thomson Reuters/Jefferies CRB Global Agriculture Equity Index Fund (NYSEArca: CRBA) has struggled to gather assets with just $11 million in AUM since its October 2009 inception.

“In our view, small-capitalization companies are best positioned to translate this demand into significant growth,” IndexIQ head Adam Patti said in a press release.

“They are underrepresented in other investment options, are typically faster growing and, in many cases, are undervalued relative to mega-cap multi-national companies, making them attractively positioned for growth and for acquisitions by the larger global players,” Patti added.

CROP is part of a 13-small-cap ETF lineup IndexIQ first registered with the Securities and Exchange Commission in November 2009.

The list detailed four commodities-focused funds and nine country-specific ETFs.

 

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