Choosing An Agriculture ETF

By Matthew McCall | April 02, 2012 AAA

The Market Vectors Agribusiness ETF (ARCA:MOO) is 20% off its 2008 high, as the S&P 500 is trading at a fresh four-year high. MOO is not the only agriculture-related ETF to struggle over the last year. Both the Global X Fertilizers/Potash ETF (ARCA:SOIL) and the IQ Global Agribusiness Small Cap ETF (ARCA:CROP) are lagging the overall market.

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The Ag ETF Leader
MOO is the largest of the three with $6.11 billion in assets under management. The ETF is composed of 49 stocks that are mostly considered large-cap companies. The U.S. accounts for 38%, followed by Canada at 14% and Singapore at 10%. The top holdings are the "who's who" of agribusiness worldwide. Monsanto (NYSE:MON), Potash (NYSE:POT) and Deere & Co. (NYSE:DE) are the top three that account for 23% of the entire ETF.

The expense ratio is 0.56%, and year-to-date the ETF is up 13%.

SEE: Valuing Large-Cap Stocks

Fertilizer ETF
Slightly beating MOO in 2012 is SOIL, which concentrates on the largest and most liquid global companies in the fertilizer business. There is some overlap between the top 10 holdings of MOO and SOIL. A total of four stocks appear in both top 10 lists with Swiss firm Syngenta (NYSE:SYT) a top-six holding in both ETFs.

The major difference between SOIL and MOO is the stronger concentration that SOIL offers investors. By focusing on the fertilizer niche of the agricultural chemical sector, the number of stocks is limited. A total of 29 stocks make up the ETF, and the U.S. accounts for 26% and Canada 12%. The expense ratio on SOIL is slightly higher at 0.69%.

Small-Cap Ags
CROP takes a similar approach to MOO in investing, with one major difference - company size. CROP invests in global small-cap stocks in the agribusiness sector. There is zero overlap of top 10 holdings between CROP and the first two ETFs highlighted. The 58 stocks in the ETF that charge 0.75% in annual fees offer a niche opportunity for investors that feel the small-cap stocks have a better chance of outperforming their large-cap counterparts. So far in 2012, all three ETFs have similar returns with CROP up 12% and SOIL up 14%.

Choosing an Ag ETF
What makes this decision so difficult is that each ETF offers exposure to specific areas the others do not. The ETF for an overall play on the sector with exposure to the big names is clearly MOO, the leader in this sector. However, that will cost investors exposure to the sector's small-cap stocks that CROP specializes in. And if the goal is to concentrate on fertilizers and remove the equipment stocks and others, then SOIL is the best option. I suggest a combination of the three if it is feasible for investors, or at the very least a combination of MOO and CROP would be sufficient.

SEE: 5 Must-Have Metrics For Value Investors

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At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

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