Agricultural conglomerate Deere & Company (DE) sits in the firing line of a nasty trade war between the United States and China. The red dragon's $34 billion retaliatory tariffs, which include U.S. soybeans and pork, directly affect the revenue of Deere's customer base.
"Trade issues have weighed on farmer sentiment more recently," John May, Deere's head of agricultural solutions, told analysts when discussing the company's second quarter 2018 earnings, as reported by The Wall Street Journal. Also, Deere's input costs have risen due to steel and aluminum tariffs. (See also: Trump's Steel and Aluminium Tariffs: What You Need to Know.)
While these trade tariffs will no doubt have a significant impact on earnings, Deere's global diversification into financial services, construction, turf and agricultural technology over the past decade should help to offset higher costs and declining sales in farming machinery. The company's ability to pay steady or increasing dividends for the past 30 years shows its long-term fiscal discipline and the ability to manage downturns. Technical analysis indicates that Deere's stock chart is forming a double bottom pattern. A break above $152.50 would confirm the pattern and suggest further upside. (See also: Deere & Co.: How it Makes Money.)
Investors who are taking a longer-term view on Deere and want exposure to the stock should consider buying one of these three exchange-traded funds (ETFs). (See also: Advantages and Disadvantages of ETFs.)
The iShares MSCI Global Agriculture Producers ETF, formed in 2012, aims to provide similar returns to the MSCI ACWI Select Agriculture Producers IMI Index. The fund achieves this by investing at least 90% of its assets in securities that comprise the tracked index. VEGI holds companies in both developed and emerging markets that operate in the agricultural business. Deere commands the fund's top allocation, with a weighting of 13.87%. Other key allocations in the ETF's portfolio include Nutrien Ltd. (NTR) at 10.79% and Archer-Daniels-Midland Company (ADM) at 8.45%.
The iShares MSCI Global Agriculture Producers ETF has $33.52 million in assets under management (AUM) and a low expense ratio of 0.37%. As of September 2018, the fund has returned 5.41% over the past five years and 8.72% over the previous three years. Year to date (YTD), VEGI has returned 0.36%. Investors also receive a 1.36% dividend. (See also: Does an ETF Pay Out the Full Dividend That Comes with the Stocks Held in That ETF?)
Launched in 2010, the First Trust Indxx Global Agriculture ETF seeks to replicate the performance of the Indxx Global Agriculture Index. FTAG does this by investing the lion's share of its assets in securities that make up the underlying index. This index focuses on companies that seek to improve agriculture yields. Deere is the fund's second largest holding with a 9.59% allocation. The world's largest chemical company, DowDuPont Inc. (DWDP), is the ETF's largest holding and accounts for 10.5% of the portfolio. In total, FTAG's basket holds 43 stocks.
The First Trust Indxx Global Agriculture ETF has net assets of just $5.03 million and pays a 1.33% dividend yield. The fund's annual management fee of 0.7% is above the 0.52% category average. This fund is more for contrarian investors who like to buy out-of-favor ETFs. FTAG has five- and three-year annualized returns of -14.39% and -4.91%, respectively. As of September 2018, the fund has a disappointing -4.85% YTD return. (See also: 5 ETFs for Contrarian Investors.)
The VanEck Vectors Natural Resources ETF attempts to mirror the performance of the VanEck Natural Resources Index. It achieves this by investing the majority of its assets in securities that are constitutes of the benchmark index. This below-average-risk-rated fund holds companies that generate the majority of their revenue from either agriculture, energy, metals or forest products. Investors gain exposure to Deere through the fund's 8.55% allocation to the company's stock. Nutrien and Archer-Daniels-Midland round out the ETF’s top three holdings. HAP offers good diversification with its 293 holdings.
The VanEck Vectors Natural Resources ETF charges a modest management fee of 0.5% and has $96.11 million in AUM. As of September 2018, HAP has a five-year annualized return of 3.43% and a 10-year annualized return of 10.6%. It has a -0.92% YTD return and offers a dividend yield of 2.03%. (See also: How are ETF Fees Deducted?)