Investing in agriculture became easier last week. Another exchange traded fund with a twist was launched in the sector.
ETFs in the arena tend to have interesting and relevant trading symbols: MOO, COW, and CROP, for instance. The most recent entry is no exception: SOIL.
The Global X Fertilizer/Potash ETF tracks the performance of a diversified portfolio of 29 global equities that produce, distribute and sell fertilizer products. Weights for equities in the portfolio were approximately equal when the fund was launched. Largest holdings currently are CF Industries, Yara International, Incifec Pivot and Intrepid Potash. Management expense ratio is 0.75 per cent.
Meanwhile, another relatively new entry arrived in March, the IQ Global Agribusiness Small Cap ETF . The ETF tracks the performance of a diversified portfolio of 50 small- to mid-cap global equities in the agriculture industry. Largest holdings are Viterra, Tractor Supply, Smithfield Foods and Nutreco. Management Expense Ratio is 0.75 per cent.
The most actively traded Agriculture ETF is the Market Vector Agribusiness ETF . The ETF tracks performance of a diversified portfolio of 25 global equities in the agriculture industry. Largest holdings are Deere, Potash Corp., Monsanto, Mosaic and Syngenta. Management Expense Ratio is 0.59 per cent.
Canadian investors are more familiar with the Claymore Global Agriculture ETF . The ETF tracks performance of a diversified portfolio of 34 global equities in the agriculture industry. Largest holdings are Syngenta, Deere, CNH Global, Potash Corp and Brazil Foods. Management Expense Ratio is 0.70 per cent.
In addition, double and triple leveraged bull and bear ETFs are available.
The Agriculture sector has strong seasonal characteristics. According to Thackray's 2011 Investor's Guide, the best time to own the sector is from August to December. The trade has been profitable in 13 of the past 16 periods. Average return per period was 15.5 per cent versus only 3.2 per cent for the S&P 500 Index during the same period.
The seasonal trade is lining up nicely this year. World grain inventories are below average due to a series of droughts and floods during the past year in Russia, Australia, Canada and China. This year the grain growing season is off to a slow start in the United States due to floods in the southeast and a drought in the southwest. In addition, grain production in Manitoba and North Dakota has been impacted by floods.
Meanwhile, demand for grains is growing, particularly in China. The outlook for grain prices is positive for the second half of 2011. An interesting way to monitor grain prices is to follow the iPath Dow Jones AIG Grain ETN . This exchange traded note tracks the current price of wheat, corn and soybeans. Each grain represents one-third of the portfolio's value.
On the charts, the Claymore Global Agriculture ETF is showing early signs of bottoming. Units remain in an intermediate downtrend. However, they recently bounced from near their 200-day moving average and their short-term momentum indicators are recovering from oversold levels. Units appear to be forming a base pattern prior to start of their period of seasonal strength.
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 Inc. Reports are available at www.timingthemarket.ca and www.equityclock.com. Follow him on Twitter @EquityClock.
- Global X Fertilizers/Potash ETF$8.84-0.14(-1.56%)
- IQ Global Agribusiness Small Cap ETF$29.72-0.06(-0.21%)
- VanEck Vectors Agribusiness ETF$48.39-0.72(-1.47%)
- iShares Global Agriculture Index ETF$30.86-0.03(-0.10%)
- Barclays Bank iPath Bloomberg Grains Subindex Total Return $32.36-1.06(-3.17%)
- Updated May 3 1:38 PM -4GMT. Delayed by at least 15 minutes.