Unlike previous market downturns, say 2008 for example, the economy remains strong and all preferred...
MOO: How to Play Agriculture
04/08/2014 9:00 am EST
One area that particularly intrigues us is agriculture; longer-term, it is harder to find a group of companies better positioned to benefit from the rise in underdeveloped economies, suggests Stephen Leeb in The Cash Cow.
Many, if not most, middle- and low-income economies today rely on the developed world for, at least, some of their food supply. Over the past half century, while famines have markedly declined, food self-sufficiency has hardly budged.
As the global population continues to increase—especially in the countries that have the most meager food supplies—the demand for food will continue to grow.
The long-term trend of increased food production and, all investments related to food production, is very much intact. This means any large sell-off in food related stocks should be treated as a great buying opportunity.
The ETF that best represents agricultural investments is Market Vectors Agribusiness (MOO).
The two largest holdings in the MOO portfolio are Monsanto (MON) and Swiss-based Syngenta (SYT). Both of these companies are leaders in the biotech aspect of agriculture and produce pesticides as well as pesticide-resistant seeds.
Together they account for about 16% of the ETF. Meanwhile, the largest food-related segment in the ETF portfolio is fertilizers, at about 22%.
Farm equipment companies, such as Deere (DE), which is a personal favorite of ours, given that it is one of the world's highly innovative companies in a critical sector, accounts for about 18% of the ETF.
The remaining 40%, or so, is spread widely among landholders, food merchandisers, and livestock producers.
An added kicker is that MOO is one of the surest beneficiaries of climate change. Though the jury remains out on the extent of climate change there is no doubt that changing weather patterns will mean different growing patterns and shifting fertility among land masses.
These changes will result in temporary food shortages—a bane for the world's population, but a boon for investors in agriculture.
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