3 ETFs for Insatiable Global Food Demand - ETF News And Commentary
December 05 2012 - 5:05AM
Zacks
According to a recent report 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 recently.
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 U.N. estimates.
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 FAO, agricultural
production has to increase by 70% globally by 2050 and by almost
100% in developing countries, in order to meet food demand
alone.
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.
The investors seeking to profit from the insatiable demand for
food have the option of investing either in the ETFs 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)
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 business.
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%
year-to-date.
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
assets.
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
this space.
PowerShares Global Agriculture Fund
(PAGG)
PAGG, the closest alternative to MOO, is much smaller with AUM
of 106 million and is also more expensive with an expense ratio of
0.75%.
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)
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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