The bad news for consumers is that grain prices sit near all-time highs; China faces its worst drought in 50 years; and yield estimates in Europe have dropped nearly 10 percent due to bad weather. Moreover, if the recent E. coli outbreak in Europe causes any supply disruptions or crop recalls, the pressure on food supplies will only grow.
Really, the only good news recently was Russia and Ukraine saying they'll end export quotas on wheat.
But for investors looking to hedge their own food prices, the time is now and the choices in the ETF space have never been greater. Indeed, three funds came to market in the past month, and two of them clearly add granularity to the agricultural commodities ETF market.
Apart from the new arrivals-all from Global X-the agriculture ETF sector has three equity funds with established track records:the PowerShares Global Agriculture Portfolio ETF (NasdaqGM:PAGG), Jefferies TR/J CRB Global Agriculture Equity ETF (NYSEArca:CRBA) and the Market Vectors Agribusiness ETF (NYSEArca:MOO).
The biggest and most well-known fund in the global agriculture segment is MOO. The fund offers investors the most liquidity in the segment and has accumulated the largest asset base-almost $5.5 billion. Clearly the first-mover advantage has given this fund a leg-up on the competition, as it has become the cheapest fund in its class to trade. Furthermore, MOO offers investors the most diversified portfolio, at a cost of 0.56 percent, the cheapest of all its competitors.
All three funds have a similar geographic and market-cap tilt, with the exception of MOO, which is the only of the three without exposure to Africa. MOO is the most diversified fund as it relates to sectors, with only 44 percent of its assets concentrated in the chemical sector, versus 60 percent for both CRBA and PAGG. MOO and PAGG actually provide the most direct exposure to agriculture through companies such as Deere or Monsanto, with 25 percent of assets in the sector, compared with 19.5 percent for CRBA.
But CRBA also provides the least concentration risk, with the fund's top 10 holdings constituting only 50.7 percent of the fund's assets, versus more than 58 percent for MOO and PAGG.
New Global X Offerings
The newest offerings in the segment from Global X may not have the track records of the three existing funds, but they offer investors different exposures, from broad-based to more nuanced. That variety has become a hallmark of the ETF industry upstart that has collected more $1.6 billion since rolling out its first ETF in February 2009.
The broadest of the new funds, the Global X Food ETF (NYSEArca:EATX), launched in early May. The fund tracks the Solactive Global Food Index, exposing investors to the entire spectrum of the food industry, upstream and downstream. Where traditional funds concentrate on either fertilizer or equipment firms, EATX owns processors, packagers and producers of the products all along the food supply chain.
Offering more pin-prick precision is the Global X Fertilizers/Potash ETF (NYSEArca:SOIL), which tracks the Solactive Global Fertilizers/Potash Index. The benchmark includes 29 companies globally that operate exclusively in the fertilizer business.
SOIL has a 22 percent weighting to the U.S., followed by Israel (14 percent), Canada (12 percent) and Australia (9 percent). Although MOO, the segment leader, has a 46 percent weighting to fertilizers, SOIL's concentration may suit investors and advisors who are making more specific calls about the segment. It has an annual expense ratio of 0.69 percent.
The Global X Farming ETF (NYSEArca:BARN) is the newest entrant to the segment. It tracks the Solactive Global Farming Index and comprises 50 companies globally engaged in agri-product or livestock operations, as well as the sale of farming products.
BARN's portfolio focus is farther downstream than SOIL, and it's less diversified than MOO, PAGG or CRBA. The risk of BARN's portfolio is a continued increase in input and raw commodities costs that are passed along to the companies that store, transport and refine agriculture products-the very ones that make up the bulk of BARN's portfolio. BARN costs 0.68 percent a year.
In the end, choice is good. And, for those looking to own agri-business ETFs, that's exactly what they now have.
The current food price environment is a perfect storm for consumers and a perfect opportunity for investors.
Global X's broad EATX even provides investors with a way to offset the guilt of profiting from the crippling inflation in food prices, as Global X has made a pledge to donate all profits from the fund to Action Against Hunger/ACF International.
So much for being heartless.
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