PowerShares ETF Grows With Agriculture

08/22/2017 2:56 am EST

Focus: COMMODITIES

John Persinos

Managing Editor, Personal Finance

One time-proven strategy to build wealth is to tap into a trend with sustainable momentum that will unfold regardless of financial and economic ups and downs, notes John Persinos, editor of Investing Daily's Personal Finance.


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By investing in plays that benefit from sweeping global transformations, you can settle in for the long haul and tune out the white noise about fluctuating indicators.

The confluence of four relentless trends — political turmoil, agricultural destruction, population growth, and an expanding global middle class — provides powerful tailwinds for The PowerShares DB Agriculture ETF (DBA).

DBA is the benchmark agricultural commodity ETF. A pure play on basic food products, DBA holds futures contracts on such agricultural commodities as corn, wheat, soybeans, cocoa, coffee, sugar, and cotton. These contracts are rolled over before expiration to maintain exposure..

The scientific consensus adds up to a looming food crisis. Climate change poses a particular threat to agriculture, as farmers try to get greater yields from less and less arable land, to feed ever-growing populations.

Whether the culprit for the rising incidence of ferocious storms is climate change or something else, violently erratic weather is a new global reality that the public and private sectors are scrambling to mitigate. The most devastating effect is on agriculture.

Another tailwind is the broad recovery of emerging markets, especially in Asia and South America, which in turn is creating greater numbers of hungry middle-class consumers.

PowerShares DB Agriculture ETF is an easier and less risky play on agricultural demand than individual stocks. At the same time, it’s a pure play on all of the trends mentioned above. DBA offers investors exposure to commodities without the need for directly trading futures contracts.

DBA’s net assets stand at $694.4 million. The fund’s year to date return is -0.6%; the expense ratio is a reasonable 0.85%. Pressure on commodity prices and uncertain growth in emerging markets have weighed on DBA, making it a bargain now.

DBA should rise this year and beyond as commodity prices recover and socio-political forces (combined with environmental anomalies) create greater food shortages.

Commodities represent a fast-moving sector, and as such deliver the potential for market-beating gains (but also volatility). As the gold standard for agricultural funds, DBA makes sense for patient investors with an eye on long-term global trends.

DBA is one of the most popular ETFs for gaining exposure to agricultural commodities. Because the fund invests in a diversified basket of various agricultural natural resources, it serves as an effective diversifying tool and inflation hedge. Accordingly, we’ve placed DBA in the Inflation Hedges sleeve of our model portfolio.

Although inflation still appears relatively tame, signs are emerging that it’s gaining momentum and proactive measures are called for to protect your portfolio. PowerShares DB Agriculture ETF fits the bill, as both a hedge and a growth investment.

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