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This New Fund Offers Exposure
to One of the Hottest Sectors Around |
Published:
December 30,
2007
Van Eck
has recently launched the latest in its expanding line of Market
Vectors funds, the Market Vectors Agribusiness ETF (AMEX: MOO,
$57.40). This fund is aimed at red-hot agribusiness stocks -- a
sector that deals with anything from fertilizer to ethanol/biodiesel.
At its most basic level, it's pretty easy to understand the case
for agriculture-related companies: the world's population is
growing steadily -- and everyone has to eat. But there is only a
fixed amount of land for crops and livestock, leading to
increased demand for companies that can develop pesticides,
genetically engineered seeds, or anything else that will lead to
increased productivity.
Lately, a good chunk of farmland has been re-directed toward the
production of products used to make ethanol and other biofuels.
According to Investor's Business Daily, roughly 10% of
the nation's corn supply is used to make ethanol, a popular
gasoline additive. In turn, that lifted corn prices to 10-year
highs earlier this year. With oil peaking near $100 per barrel
and many consumers and governments clamoring for greener fuel
alternatives, there has been plenty of investor interest in
ethanol producers.
Van Eck has given traders a well-rounded way to play the broad
agribusiness group, for a modest expense ratio of 0.65% --
reasonable for a sector fund. Tracking the performance of the
DaxGlobal Agribusiness Index, MOO offers exposure to several
dozen leading agricultural companies, including equipment
manufacturer Deere (NYSE: DE), seed specialist Monsanto (NYSE:
MON), meat producer Smithfield Foods (NYSE: SFD) and fertilizer
maker Potash (NYSE: POT).
Don't be too quick to write off such companies as slow movers,
particularly those with operations in overseas markets. For
example, Japanese equipment maker Komatsu, one of the fund's top
holdings, has delivered impressive annual earnings growth of
+24% over the past decade.
As you might expect, growing interest in this sector has
translated into hefty rewards. In fact, agrochemical stocks have
posted average annual returns of +93% over the past three years
-- making it the top performing industry among more than 120
tracked by Morningstar. Meanwhile, agricultural machinery and
other sub-components of this industry are near the top as well.
And the DaxGlobal Agribusiness Index has historically been a
great way to stay on top of this sector. As of October 31, the
index had seen gains of +87% over the past 12 months and a
cumulative return of +452% over the past five years.
Our View --> There's no
doubt that rising grain prices, the upside potential for
ethanol, and other factors could keep this fund moving forward.
However, we would be cautious about jumping in strictly because
of its attractive gains in the past.
Given the tremendous rally these stocks have enjoyed, valuations
in the sector have become somewhat stretched -- the fund carries
a relatively lofty average portfolio P/E of 28. Still, as this
global growth trend continues to unfold, MOO could be
worth a look, particularly on a pullback.
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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