The Fidelity Momentum Factor ETF (FDMO) is a U.S.-stock-based exchange-traded fund (ETF) that tracks...
MOO if You're a Bull on Agriculture
11/16/2010 1:30 pm EST
Ian Wyatt, editor of Ian Wyatt’s 100K Portfolio, recommends an ETF stacked with the leading agricultural suppliers from around the world.
There are three trends that point to a bullish outlook for investments in agriculture for the next three to five years.
First, global population growth means that there will be more mouths to feed. Nearly all of this growth is in the emerging markets, which are also experiencing rapid growth of the middle class and diet changes as a result.
Second, there is a limited amount of arable land, or land that can be used for growing crops. To meet food demand, arable land will need to become more productive.
Third, food prices reflect energy prices since a large amount of energy is required for the production and transportation of food. The long-term case for higher oil prices is strong, and rising energy costs will mean higher food prices.
I recommend investing in agriculture through the Market Vectors Agribusiness ETF (NYSEArca: MOO), a fund offered by Van Eck Global.
MOO aims to follow the performance of the DAXglobal Agribusiness Index, which tracks the performance of companies that generate at least 50% of their revenues from agriculture.
This exchange traded fund owns shares of 46 companies that are listed in the US and on foreign markets. One of the biggest benefits to MOO is the diversification it offers. The fund owns companies ranging in size from [small- to large-capitalization stocks]. It also offers exposure to international markets, with 65% of the investments outside the US.
The holdings include [suppliers] of agriculture products, chemicals, equipment, livestock, ethanol and biodiesel. Some of the biggest holdings include Deere (NYSE: DE), Mosaic (NYSE: MOS), Monsanto (NYSE: MON) and Potash Corp. of Saskatchewan (NYSE: POT).
MOO currently has net assets of $2.2 billion, and charges investors a reasonable 0.56% annual expense. The ETF also pays a 1% dividend, which is a nice bonus.
Shares of this ETF have been performing well. Year to date, the fund is up 14.6%, well ahead of the 7.4% gain for the Standard & Poor’s 500 index. Given the rise for agriculture prices in 2010, it's not surprising that this fund's performance is outpacing the broader market. The ETF [is up] 38% since the low in late June. Today, shares are trading [just above $50, 4% below their recent] 52-week high, [and] remain 23% below their all-time high in 2008.
While MOO has risen dramatically over the past few months, this increase is justified, given the similar jump in agriculture prices. In total, I expect to allocate up to 5% of my total portfolio to this investment. I'll also continue to hunt for additional investments in the agriculture sector, because I believe that this will be one of the few opportunities with huge potential for the long term.
Subscribe to Ian Wyatt’s $100K Portfolio here…
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