The stock market funk has continued to create uncertainty and fear.

After dropping 38% in 2008, the S&P 500 is down another 25% this year. While we may have opinions about how long it might take to turn around, we can take comfort in knowing that eventually stocks will recover.

We can expect certain types of market behaviors that indicate a possible recovery. One of those is that certain sub-sectors of the market will start to outperform, but some people may not believe the performance is sustainable.

One segment that could be starting to rebound is agriculture stocks. Using the Market Vectors Agribusiness ETF ( MOO) as a proxy, the group dropped 51% in 2008. In the past three months, MOO has fallen 5% vs. 23% for the S&P 500.

Market Vectors Agribusiness ETF vs S&P 500
chart
Yahoo Finance

There could be several reasons for this, but I believe that long-term global demographic trends make MOO a candidate to be one of the leader groups out of this bear market, regardless of whether that is starting now.

The emerging world's diet has been improving and will continue to do so, as middle classes arise in places like China today and maybe Africa -- or any emerging country with a large, young population poised to improve its quality of life -- tomorrow. This means more protein and growing crops in places that have previously not had farmable land.

The companies in MOO play into this space. Seed companies like Syngenta ( SYT) and Monsanto ( MON) are prominently featured as the two largest holdings, accounting for 18% of the fund. Familiar fertilizer names like Potash Corp. of Saskatchewan ( POT) and Mosaic ( MOS) are also big holdings. The U.S. is by far the largest country, at 49% representation, down from 55% at inception a year and a half ago; followed by Canada at 11.3%; Singapore, 10%; and Switzerland, 9.2%. The Switzerland weighting is all Syngenta.

In terms of adding MOO to a portfolio, the fund is part of the materials sector. It has a beta of 1.24, which, not surprisingly, would make it more volatile than many other funds. It has a low correlation, 0.68, to the S&P 500, which could reduce some of the impact of the volatility, meaning the fund could zig a little when the stock market zags.

A big part of the long-term bull case for me is that the quality of health and nutrition around the world is going to improve. That doesn't have to mean that the quality will be the same as in the U.S., but it doesn't have to be for this theme to work in the long run. The money is going to be spent, and while that guarantees nothing, it does create visibility for higher stock prices.

It may be a while until investing in broader indices provides the return to which investors have been accustomed. In that light, themes with easily understood tailwinds like agriculture could become very important.

At the time of publication, Monsanto was a client and personal holding.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.

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