As the Northern Hemisphere prepares to welcome fall, cold weather coupled with the global impact of the coronavirus means more people will stay indoors in the coming months. In turn, we can cook and eat more at home. Because food and drink are such an integral part of our lives and our economy, they can make attractive long-term investments.
According to a report by the United States Department of Agriculture in February 2020, the agriculture, food and related industries in the United States created approximately 22 million jobs in 2018 (approximately 11% of employment). These industries also contributed 5.2% of that of the country.
Investing in stocks or exchange traded products (ETPs) in these industries can very well spice up long-term portfolios. Below are three ETPs that provide exposure to the agricultural, food and beverage industries:
1. Invesco Dynamic Food & Beverage ETF
Current Price: $ 32.77
52 week range: $ 24.44- $ 35.45
Dividend Yield: 1.25%
Expense ratio: 0.65%
Invesco Dynamic Food & Beverage ETF (NYSE 🙂 is composed of US food industry stocks, including 32 companies. PBJ follows the equally weighted Dynamic Food & Beverage Intellidex index.
The most important sectors (by weighting) are food processing (50.3%), restaurants and bars (17.68%) and food retail & distribution (15.41%).
The top five companies make up just over 25% of the total net assets, which are $ 80 million. They include Brown Forman (NYSE :), Mondelez International (NASDAQ :), Monster Beverage (NASDAQ :), PepsiCo (NASDAQ :), and Hershey (NYSE :).
Year-to-date (YTD), the fund is down about 5%. But the comeback since the 52-week low hit in mid-March has been impressive. As a result, the fund's valuation has also become rich. The underlying P / E and P / B ratios are 44.79 and 2.97, respectively. We would ideally wait for a possible drop back to the USD 30 level before investing for the long term.
2. iShares MSCI Global Agriculture Producers ETF
Current Price: $ 29.36
52 week range: $ 18.36- $ 29.38
Dividend Yield: 2.63%
Expense ratio: 0.39%
The iShares MSCI Global Agriculture Producers ETF (NYSE 🙂 provides exposure to a range of US and global agricultural businesses. These companies produce fertilizers and agrochemicals, agricultural machines, and packaged food and meat.
The fund, which includes 136 companies, tracks the MSCI ACWI Select Agriculture Producers Investable Market index. The top five holdings make up more than 40% of the total net assets, which amount to nearly $ 28 million. These are Deere (NYSE :), Archer-Daniels-Midland Company (NYSE :), Nutrien (NYSE :), Corteva (NYSE 🙂 and Kubota (T :).
YTD, the VEGI is up about 1%. In fact, it hit a record 52 weeks on September 16. Since early spring, VEGI is up more than 90%. This makes the lagging P / E ratio of 19.26 and P / B ratio of 1.85 a bit on the expensive side. Any possible drop towards the USD 27.5 level would improve the margin of safety. In the long run, we are optimistic about the sectors represented in the fund.
3. UBS ETRACS CMCI Food Total Return ETN
Current Price: $ 15.65
52 week range: $ 13.63- $ 16.79
Expense ratio: 0.50%
Our last exchange-traded product is an (ETN). The ETRACS CMCI Food Total Return ETN (NYSE 🙂 provides exposure to a portfolio of commodity futures, an unsecured debt issued by a financial institution such as UBS (NYSE :). Therefore, investors do not buy shares but have a bond-like certificate stating UBS's debt to the holder of the note.
There are currently 11 agricultural and livestock sector futures contracts. These commodity futures contracts vary over up to three constant terms from three months to one year.
FUD tracks the UBS Bloomberg CMCI Food USD TR index created in 2007. The four major commodities comprise more than 55% of the ETN. These are (19.62%), (15.01%), (14.69%) and (7.80%).
So far in the year, FUD has fallen by about 6%. Since 2010, the trend has even gone down in the longer term. However, since its all-time low in March, the ETN is up about 15%.
Those investors interested in investing in agricultural and livestock products may want to study more FUD and pay attention to factors influencing the industry. A good source is the US Department of Agriculture's monthly World Agricultural Supply and Demand Estimates (WASDE) reports
The weather plays an important role in grain prices. The trade war rhetoric between the potential of the US and China also had an impact on US agricultural exports. Longer term demand for most of these goods will potentially increase due to demographics, i.e. feeding a growing world population.
