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Cash Cow Says MOO
08/22/2013 8:00 am EST
In his The Cash Cow newsletter, Stephen Leeb sees a bright future for the agribusiness sector, and is investing in this area through one ETF in particular.
The soft side of commodities generally means things that are grown, not mined, and includes just about every base ingredient in what we eat and drink.
Grains like wheat, corn, and soybeans, along with protein sources like beef, poultry, and pork, combine with fruit, cocoa, sugar, and so on, to form the basic staples of the world's food supply. These commodities enjoy vibrant and liquid futures markets around the world.
Strategically speaking, two things will drive soft commodity prices around the world: the growth in population, and the growth in incomes.
These twin pillars form the backbone of a multi-decade trend that has already seen global agribusiness companies shift both, the way they do business, and where.
The bottom line: the strategic tailwinds for agricultural companies are very strong. Businesses that provide the tools to more efficiently harvest crops, the technology to improve seed yields, or the fertilizers to maximize harvests are destined to have basic global economic trends on their side.
Fortunately for investors, the Market Vectors Agribusiness ETF (MOO) is designed to capitalize precisely on these trends.
The ETF invests primarily in companies that generate at least half their annual revenue from agrichemicals, fertilizers, seeds, farm machinery, irrigation equipment, agricultural products, livestock, or fishing.
It holds 50 stocks in a capitalization-adjusted portfolio. Given the domination of global players like Archer Daniels (ADM), Monsanto (MON) and Potash (POT) in the agribusiness industry, however, MOO is still pretty top-heavy—the top ten positions account for nearly 60% of its $4.6 billion in assets.
While this introduces a degree of company-specific risk, the overall trend is such that it would be difficult to meaningfully participate in this trend otherwise.
Undoubtedly a long-term speculation, MOO's constituent companies are anchored by some of the most compelling long-term scenarios around.
The world's population is growing fast, and a very large slice of that population is getting wealthier by the day. It may take a while, but both factors auger extremely well for those companies involved in soft commodities. And MOO is a fantastic way to play it.
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