Thackray’s 2011 Investor’s Guide notes that the best performing subsector in the month of November during the past 15 years is the agricultural products sector. The average gain per period was 5.6 per cent. The easiest way to invest in the sector other than ownership of futures contracts is through exchange-traded notes (ETNs).
ETNs consist of a combination of short term notes and commodity futures contracts designed to track the trend of the underlying commodity. Notes are bought and sold on U.S. exchanges like stocks. They are non-leveraged.
A wide variety of ETNs in the sector are available. The 27 ETNs are available in two categories: ETNs that track a basket of products and ETNs that track individual products.
The most actively traded ETN is PowerShares DB Agriculture Fund . The fund holds a diversified portfolio of 34 agriculture product futures. Largest holding are coffee, sugar, cocoa, corn, soybeans and livestock. The management expense ratio is 0.75 per cent.
Investors looking for a pure play in grains focus their attention on iPath Exchange Traded Notes Dow Jones – AIG Grains Total Return Sub-Index ETN Series A . The fund holds an equal weight in corn, soybeans and wheat. The management expense ratio is 0.75 per cent.
Investors looking for a pure play in livestock prefer the Dow Jones UBS Livestock Sub-index Total Return Fund . Live cattle represent 64 per cent and lean hogs represent 36 per cent of the fund. The management expense ratio is 0.75 per cent.
Individual agriculture exchange-traded products include the Teucrium Corn Fund , iPath Dow Jones – AIG Sugar Total Return Sub-index Fund , iPath Dow Jones – AIG Cotton Total Return Sub-index Fund , iPath Dow Jones – AIG Coffee Total Return Sub-index Fund and iPath Dow Jones – AIG Cocoa Total Return Sub-index Fund . All have a management expense ratio of 0.75 per cent.
On the charts, most agriculture products have an improving technical profile. They bottomed with North American equity markets at the beginning of October following sharp price declines in September. Recently, they have stalled near the top of their recent trading range.
The PowerShares DB Agriculture Fund has a trading range between $29.32 and $31.21 during the past four weeks and appears poised to enter its period of seasonal strength from the beginning of November to the end of February. Seasonal weakness in the U.S. dollar index to the end of the year could add to potential return.
Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. He is also a research analyst for JovInvestment Management Inc. All of the views expressed herein are his personal views although they may be reflected in positions or transactions in the various client portfolios managed by JovInvestment. JovInvestment is the investment manager for the Horizons family of ETFs. Daily reports are available at http://www.timingthemarket.ca/