NEW YORK (
) -- Despite the current freeze, agriculture has been a hot area of the market for investors.
One of the best ways to gain exposure to this sector is through the
Market Vector's Agribusiness ETF
, which tracks fertilizer firms like
as well as seed suppliers like
Unlike derivative-based ETF products like the
Powershares DB Commodity ETF
, MOO seeks to track firms that derive at least 50% of revenues from agriculture.
Launched in 2007, MOO tracks 46 global agriculture companies and has a net expense ratio of 0.59%. According to recent data from the National Stock Exchange, MOO saw net asset inflows of $731 million in 2009, and now has over $2 billion in assets.
MOO uses a modified market-capitalization ranking strategy to weight global agriculture firms. In order to be considered for the underlying index, a company must have a market cap exceeding $150 million, worldwide daily average trading volume of at least $1 million over the past six months and in each of the past two months, and maintained monthly trading volume of 250,000 shares over past six months.
Market Vectors categorizes MOO's holdings into five groups: agriproduct and livestock operations, agricultural chemicals and equipment and ethanol/biodiesel. In addition to MOS, MON and POT, MOO's top ten components also include
While MOO isn't tied as closely to physical agriculture prices as DBC, the fund's structure avoids the hassles of trading futures contracts. During 2009, the Commodities Futures Trading Commission (CFTC)
the connection that the activity of futures traders, and funds like DBC, had on the commodities they were designed to track.
In anticipation of new futures limitations, DBC
its underlying portfolio to stay within expected boundaries. While DBC was able to restructure on the fly, other funds like the
United States Natural Gas ETF
of new shares.
While the CFTC has yet to lay down a definitive plan for futures-based commodity ETFs, investors in MOO will not have to worry about futures regulation. Since MOO's portfolio is equity-based, investors can be assured that a consistent strategy will be utilized.
Arable land is finite, and the companies that comprise MOO's portfolio are integral to the operation of the agriculture industry. Fertilizer companies like POT and MOS will continue to be as vital to food production as seed distributors like MON.
Since many of the largest agriculture firms are U.S. based and traded, nearly 50% of the components in MOO's underlying portfolio are U.S. companies. Despite the dominance of US firms, MOO investors also gain access to companies is fast-growing regions of the world like Singapore and Malaysia.
Agriculture companies grow and develop some of the world's most important tangible assets. Investors looking to bet on the agriculture sector, or to add large agriculture firms to a long term portfolio should consider MOO.
-- Written by Don Dion in Williamstown, Mass.
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At the time of publication, Dion Money Management owns Market Vector's Agribusiness ETF.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.