Jared Cummans: If Jim Rogers has taught us anything, its that agriculture exposure is a must for any investment portfolio. But buying corn or soybean futures and rolling on a steady basis seems impractical for keeping allocations to what might make up 1% of your overall holdings. Beyond futures products, there are a wide variety of equities tied to the agriculture sector, but picking the right one can be tricky business. Enter agribusiness ETFs. Products dedicated to offering exposure to a wide variety of firms tied to the agriculture sector, giving investors an equity spin on their favorite commodities like sugar, cotton, and cocoa [see also Three Things Wall Street Journal Didn’t Tell You About Commodities].
Currently, there are two strong ETF options available to investors; both come with their set of advantages and disadvantages that may make them right for one kind of investor, but completely wrong for another. Below, we outline the similarities and differences between the IQ Global Agribusiness Small Cap ETF (NYSE:CROP) and Market Vectors-Agribusiness ETF (NYSE:MOO) to help investors pick the right product for their goals.
Indexes & Holdings
The two funds track similar indexes, though CROP’s respective benchmark has a major focus on small cap firms while MOO’s DAXglobal Agribusiness Index has a number of larger household agriculture names. As far as underlying holdings go, the two funds could not be more different. CROP has a total of 71 holdings with 47% of assets dedicated to the top ten holdings. The fund is over 75% international and is dominated by mid cap companies, showing that its always good to look under the hood of a product as its name and exposure do not necessarily line up. Top companies in this product include Tractor Supply, Viterra Inc, and Smithfield Foods [see also Invest Like Jim Rogers With These Three Agriculture Stocks].
As for MOO, the fund features less diversity, with just 45 total securities and over 57% of assets dedicated to just ten of those. The mostly-large cap MOO is home to big names like Potash, Monsanto, and Deere & Co. For investors looking to cash in on the U.S. robust farming success, MOO features an allocation of over 37% to the states, while countries like Canada and Singapore come in as the next two largest geographic weightings. Though MOO is large cap, the majority of its country allocations lie in emerging markets, while the small-cap CROP focuses on developed markets. Though this likely has little impact on either fund, it is certainly something to keep in mind before investing [see also 25 Ways To Invest In Silver].
From a trading standpoint, the two funds are apples and oranges as far as comparisons go. MOO has a hefty $5.4 billion in assets with an average daily volume topping 1.6 million. CROP, on the other hand, has just $40 million in assets and an ADV of 34,000. Keeping in mind that CROP is still in its infancy, the fund has grown quite nicely, but for active traders looking to quickly shift positions, MOO has the upper hand.
Performance & Fees
Comparing the two on historical performance is tough given that CROP debuted in March of this year. Since its inception, the fund has shed 10.9% while MOO lost 12.3% over that same time period, putting the funds relatively in line on a performance basis. The result does come as a bit of a surprise in that the small cap product is outperforming its large cap counterpart; in rough markets like we are enduring today, small cap products tend to fall behind while larger-based funds are better able to hold their ground [see also Dividend Special: Top Companies In Every Major Commodity Sector].
Looking specifically at MOO, which has been around since 2008, the fund has chalked up some nice returns. The product is down about 11.6% on the year (a typical result given the rough few months for commodities) but is up nearly 93% in the trailing three year period, making this an attractive long term option.
The fee structure of these two products is another important factor that investors will need to take a close look at. CROP comes at a price of 75 basis points, not terribly expensive given the small cap nature of its exposure. MOO, however, charges just 59 basis points in comparison. While this certainly makes it the cheaper option, it is still relatively expensive for a large cap product and may turn some investors off. Unless you are a heavy hitter, the 16 point spread won’t hit you too hard; a $10,000 investment would net to about a $16 annual fee difference in the two funds. But for those looking to make big bets, MOO’s cheaper expenses may save you a fair amount of money over the long term [see also Commodity Investing: Physical vs. Futures].
All in all, both funds come with a pretty solid methodology and make for enticing investment options. While no fund is better than the other, your investment style will certainly have an impact on which product is right for you. For the active trader, or risk-averse investor, MOO’s supreme liquidity and large cap structure will make for a stable investment. But CROP’s small cap build-out makes it a prime candidate for high growth, something that MOO cannot offer. Also consider that CROP has a much better diversity in its holdings than its competitor, which could have a significant impact over the long run.
Written By Jared Cummans From CommodityHQ Disclosure: No positions at time of writing.
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