According to a recent
from the Union Nations "world grain reserves are so dangerously
low that severe weather in the U.S. or other food-exporting
countries could trigger a major hunger crisis next year".
With food consumption exceeding the amount grown for six of
the last 11 years, countries have run down reserves from an
average of 107 days of consumption 10 years ago to under 74 days
3 ETFs for the Fiscal Cliff
Looking at the longer-term--global population will grow from 7
billion to almost 9 billion by 2040 and the number of
middle-class consumers will increase by 3 billion over the next
20 years, per
As a result, the world will need 50% more food for the booming
population. Further most of the growth in population will be in
less developed countries. There is not much room for expansion of
arable lands in these countries. Thus most of the required
increase will have to be met by increasing crop yield.
The use of agricultural commodities for production of biofuels
will also continue to increase. According to
, agricultural production has to increase by 70% globally by 2050
and by almost 100% in developing countries, in order to meet food
demand alone. (Read: I
nvest Like Warren Buffett with These ETFs
The companies in the agribusiness industries such as
manufacturers of seeds and fertilizers, and farm-machineries will
benefit from this booming demand.
Additionally, growing middle class in the emerging countries
now demand and are willing to pay for better quality food and
thus the food prices are expected to remain high.
Agricultural commodities like other "hard asserts" also act as
inflation hedge. As the major central banks all over the world
continue to increase money supply, the investment case for hard
assets becomes stronger. (Read:
Shine and Protect your portfolio with Gold
The investors seeking to profit from the growing demand for
food have the option of investing either in the
that hold agribusiness stocks (like MOO and PAGG) or the ETFs
that bet directly on the agricultural commodity prices using
futures (like DBA).
The second group is more volatile and more suitable for
betting on the shorter-term movements in the prices of
agricultural commodities. On the other hand, the first
group of ETFs is suitable for investors who seek to benefit from
the longer-term growth in demand for food. We may add that the
short-term performance of the ETFs in this group may vary from
the trends in commodity prices.
Market Vectors Agribusiness ETF (
MOO seeks to track the performance of the DAXglobal
Agribusiness Index, which provides exposure to companies that
derive at least 50% of their revenues from agricultural
This ETF was introduced in August 2007 and has proved to be
extremely popular choice for investors in this space, attracting
more than $5.6 billion in assets till date. It has returned 9.8%
The ETF currently holds 53 securities, most of which are large
cap (84%) companies. Monsanto, Potash Corp. of Saskatchewan and
Deere are the top three holdings for the fund. The fund is
top-heavy with top ten holdings accounting for 57% of the
In terms of country exposure, U.S. (37%), Canada (14%) and
Singapore (9%) occupy the top spots. The fund charges an expense
ratio of 0.56% annually, making it one of the cheapest choices in
PowerShares Global Agriculture Fund (
PAGG, the closest alternative to MOO, is much smaller with AUM
of 106 million and is also more expensive with an expense ratio
The fund has highest exposure to the U.S. (38%), followed by
Canada (14%) and Switzerland (9%). Syngenta (9%), Monsanto (8%)
and Archer-Daniels-Midland (8%) are the top three holdings.
The ETF has returned 12.5% year-to-date.
PowerShares DB Agriculture ETF (
DBA uses futures contracts on some of widely traded
agricultural commodities. This fund has $1.8 billion in AUM and
charges 0.75% in expenses.
Top futures holdings in the index are corn, soybeans, sugar
and live cattle-each with a 12.5% weight. The fund has amassed
close to $1.9 billion in AUM and trades in volume of over one
million shares a day.
DBA is slightly expensive with 1.01% in annual fees and has
gained only 0.14% so far this year.
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PWRSH-DB AGRIC (DBA): ETF Research Reports
MKT VEC-AGRIBUS (MOO): ETF Research Reports
PWRSH-GLBL AGRI (PAGG): ETF Research Reports
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