In this week’s Macro Theme, we review our “Slowing Dragon” theme. We began discuss...
2 Ag ETFs You Can't Forget
08/06/2012 11:45 am EST
Near the Chicago stockyards, there's a restaurant called The Oink & Moo, a name that advertises the freshness of its products. So it is with this pair of ETFs that have tickers that say it all, observes Benjamin Shepherd of ETF Investment Insider.
Although droughts are definitely bad news for all consumers, we can at least offset some of our losses in the grocery aisle with gains from our portfolios.
Teucrium Corn Fund holds a basket of corn futures contracts, and its portfolio has jumped more than 20% this year, with much of that gain occurring just since June. The fund currently holds about $105 million in assets, and has an average daily trading volume of around 100,000 shares, so it's fairly liquid for a rather obscure specialty exchange traded product.
One drawback to the fund is that it does carry a hefty 1.42% annual expense ratio. Still, that might be worth it for a more short-term trade, particularly if the corn yield turns out to be worse than expected.
Market Vectors Agribusiness offers a more diversified bet on poor crop yields. But the fund has only returned about 6% year to date. That's largely due to the fact that it doesn't offer pure-play exposure to grains, instead holding such stocks as fertilizer outfit Potash Corporation of Saskatchewan (POT), the seed company Monsanto (MON), and iconic equipment maker Deere (DE).
While severe droughts are typically one-off events, they usually portend a cycle of lower-than-average rainfall, which can last at least a few years. That will drive medium-term demand for irrigation equipment, as well as drought-resistant seed strains offered by companies such as Monsanto. So companies that specialize in these areas are well positioned for future profits.
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