This article was co-authored with Aditya Pandav, who assisted in data aggregation, research and analysis.
The theme of agriculture, food production and natural resources has become increasingly important as population pressures and urbanization, particularly in emerging economies, puts a strain on global resources. This interest has also been reflected in the investing world, with several ETFs being launched in the past decade that address this theme.
As of year-end 2019, there are 20 ETFs listed in the US that provide equity-based exposure to agriculture and natural resources. It is important to note that these ETFs are distinct from exchange traded products that provide futures-based exposure to commodities. Futures based ETPs have very unique characteristics since they do not track spot prices and are also impacted by futures roll costs. Equity based commodity ETFs are also not ‘pure commodity plays’ since they are correlated with the broader equity market and incorporate company specific management risk. However they do provide investors with convenient and low cost access to agri-commodity and natural resources driven businesses.
There is no universally accepted classification scheme for these ETFs, and we have therefore grouped them into four categories for purposes of comparison and analysis:
- Agri-business ETFs
- Water themed ETFs
- Timber & Forestry Themed ETFs
- Diversified Natural Resources ETFs
1. Agri-business ETFs
The five agri-business ETFs listed in the US are summarized below. The oldest ETF in this space (MOO) was launched in 2007 and has over $700M in assets as of year-end 2019. The other ETFs in this space have similar investment objectives – they all hold global companies engaged in agri-chemicals, production and trading of agricultural and food products. The net expense ratios for ETFs in this category range from 0.39% for DIET to 0.76% for CROP.
All of these ETFs are either market cap (or modified market cap) weighted. The IQ Global Agri-business Small Cap ETF (CROP) is differentiated from the others with an explicit small-cap focus. It the only one of the five ETFs that does not have any overlap in its top 10 ETF daily constituent holdings with the others.
Table 1: Agri-business ETFs listed in the US
2. Water themed ETFs
The five water themed ETFs listed in the US are summarized below. Interestingly, three of these five ETFs are from the same fund manager (Invesco). This product overlap reflects Invesco’s past acquisitions of Guggenheim’s ETF products (CGW) and PowerShares (PHO and PIO). CGW is very similar to PIO in that both ETFs hold global water stocks, unlike PHO which is designed to be more US focused. Consequently, both CGW and PIO have very similar historical returns, though CGW has a lower expense ratio than PIO. The First Trust Water ETF (FIW) also holds global water companies and has a lower expense ratio (0.55%) than the Invesco ETFs (which range from 0.6% - 0.75%). The Tortoise Water fund has the lowest expense ratio in this category at 0.4%.
Table 2: Water themed ETFs listed in the US
3. Timber & Forestry Themed ETFs
There are two ETFs that compete head-to-head in this category. Blackrock’s WOOD has a lower expense ratio (0.46%) than Invesco’s CUT (0.55%). Even though both ETFs provide global exposure to timber and forestry based businesses, there are differences in their daily ETF holdings e.g. only 5 stocks are common between the top 10 holdings of the two funds. This has resulted in CUT outperforming in the trailing 1 year through December 27, 2019 while WOOD has performed better over the trailing 3 years.
Table 3: Timber and forestry themed ETFs listed in the US
4. Diversified Natural Resources ETFs
The final category contains eight ETFs that give diversified exposure to natural resources spanning energy, water and timber. The table below summarizes the four largest ETFs in this category. FlexShares’ GUNR is the largest ETF in this category with over $5B in assets as of December 27, 2019. Not surprisingly, energy companies dominate with Exxon Mobil and Chevron as two of its largest holdings, although core exposure is maintained to water and timber companies. State Street also offers two natural resources ETF, with GNR focused globally and NANR on North American exposure. They also have lower expense ratios (0.4% and 0.35% respectively) than FlexShares’ GUNR and Blackrock’s IGE, both of which are at 0.46%
Table 4: The four largest diversified natural resource ETFs listed in the US
In summary, there are twenty ETFs listed in the US that provide investors with exposure to the agri-business and natural resources theme. ETFs like GUNR and GNR provide access to diversified natural resources while other ETFs provide more targeted exposure to agri-business, water and forestry related businesses. As the industry innovates in response to the growing demand for sustainable natural resources, it appears likely that the ETF assets and product range in this category will grow as well.
All data was sourced from the CFRA First Bridge ETF database; as of Dec 27, 2019.
The co-author of this article Aditya Pandav was a research intern with First Bridge Data in 2019.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Aniket Ullal
Aniket Ullal is head of ETF data and analytics for CFRA, one of the world's leading independent firms. Previously he was the founder and CEO of First Bridge Data, which was acquired by CFRA in August 2019. Prior to starting First Bridge, he had product management responsibility for S&P’s US indices, including the widely followed S&P 500 and S&P/Case-Shiller indices. These indices have over $1 Trillion in ETF assets tracking them. He is the author of 'ETF Investment Strategies' (McGraw-Hill; 2013).
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