Agriculture feeds the world, and that makes it a big business worldwide. From growing crops to moving farm product to market, the agricultural industry plays a pivotal role in global commerce. Investors seeking to make money on agriculture can invest in a number of exchange-traded funds designed to make it easier to get diversified agricultural exposure into your portfolio. The following five ETFs give investors different swaths of the agriculture sector, and they can help you tailor your own position in the industry to your individual views and financial goals.
|
Agriculture ETF |
Assets Under Management |
Expense Ratio |
5-Year Average Annual Return |
|---|---|---|---|
|
VanEck Vectors Agribusiness (MOO +1.35%) |
$809 million |
0.53% |
4.5% |
|
PowerShares DB Agriculture Fund (DBA +0.64%) |
$748 million |
0.89% |
(6.8%) |
|
iPath Bloomberg Coffee Subindex (JO +0.00%) |
$148 million |
0.75% |
(16.2%) |
|
iPath Bloomberg Grains Subindex (NYSEMKT: JJG) |
$109 million |
0.75% |
(13.6%) |
|
Elements Agriculture Total Return (RJA +0.00%) |
$103 million |
0.75% |
(7.9%) |
Data source: Fund providers.
2 very different approaches to agriculture
The two top ETFs in the agriculture space stand out from their peers by a wide margin, but they take very different approaches to the sector. The VanEck Vectors Agribusiness ETF focuses on investing in the stocks of companies that operate in agriculture. Among its top holdings, you'll find companies in the farm equipment, seed and fertilizer, animal health, and food transport and processing industries. Because of that mix among the roughly 60 stocks in the portfolio, about a third of the ETF's assets are in consumer staples, with another third in materials and the remainder split between industrial stocks and healthcare companies. Just over half of the fund's assets are in U.S. stocks, with Canada and Japan taking the other podium positions among top countries. As you can see, this approach has been the only one to make money over the past five years, as stocks in the industry have climbed even as crop prices fell.
The PowerShares DB Agriculture Fund instead invests directly in futures contracts for farm and ranch commodities. Grains like wheat, corn, and soybeans make up about 40% of the portfolio, with cattle and hogs representing another 30%. Sugar, coffee, and cocoa split another 25% of the fund, with the remainder going to cotton futures. The losses that the ETF has suffered reflect the poor performance of agriculture commodity prices over the past five years.
Image source: Getty Images.
Other players in agriculture
The Elements fund is similar in many ways to the PowerShares ETF, but it has a different structure. As an exchange-traded note, the Elements offering is subject to some credit risk, and it has a limited life span due to its maturity date in 2022. Corn, wheat, cotton, and soybeans together make up almost half the exposure to the note's tracking index, but the list of included commodities goes well beyond the PowerShares fund. The index includes everything from soybean oil, orange juice, and milk to lumber, rubber, and milling wheat. Returns have been weak and consistent with the PowerShares fund.
More specialized exchange-traded notes have fared worse. The iPath Coffee ETN has suffered from dramatic drops in coffee prices, leading to its particularly poor performance. The iPath Grains ETN focuses solely on corn, soybeans, and wheat, with a split of 47%, 33%, and 20% among the three commodities. These commodities have also underperformed the farm sector overall, leading to their bigger losses.
Which agriculture ETF is best for you?
The main question to ask yourself is whether you want stock exposure to companies that deal in commodities or direct commodity exposure to crops themselves. Recently, there's been a decided preference for agribusiness companies, and that has sent the VanEck ETF to huge outperformance. If commodity prices bounce back, then the other funds could reverse course and surpass their leading rival.
