Today we shall be looking at some of the best agriculture ETFs in the USA. As of now, the two common realities that undergird agriculture investment cases are that the global population is constantly growing and that every human being must eat.
There is also a third reality- climate change- this has made it even harder for farmers to determine how easy it will be for them to feed the billions of people. That said, however, the companies that can help farmers achieve their objectives to feed the masses will end up becoming valuable.
The truth of the matter is that agriculture is not a standard investment sector. The financial stocks that you will find in this industry vary by definition, and they range from equipment manufacturers to crop production stocks.
Agribusiness in itself encompasses everything, right from those who produce the food, to the agrichemical fertilizers, and those who make the very sophisticated farm equipment. We have, for instance, seen how farmers today are relying on self-guided tractors that make their way in the farms with the help of GPS, the way they utilize drones to monitor the progress of their crops, as well as how they use artificial intelligence to irrigate their crops.
Even with the challenges that are looming in this industry, farmers are still contributing to the well-being of those who rely on their produce for consumption, as well as investors who are out to make an income from the successful implementation of various agricultural processes.
Agricultural commodities such as corn, soybeans, and wheat, have been common in the global market owing to the fact that they are staple foods in their various forms. They are actually global giant commodities whose purchase and sales affect the well-being of major economies. Like many other commodities, these agricultural products are subject to volatility.
Investors looking for ways to earn an income in this industry, at times prefer to work with agriculture-based exchange-traded funds (ETFs). Using ETFs allows the farmers to diversify their investment portfolios by investing in futures contracts. At times, diversification is merely all about the diversification of the maturity dates of the futures contracts that investors hold for a particular commodity.
There are a couple of outstanding agricultural commodity ETFs that farmers in the USA can trade, excluding those that have less than $50 million as assets under management.
Agricultural commodities have generally been underperforming the other commodities. In 2020, for instance, they had a total return of 8.6%, in comparison to the S&P’s index total, which had a return of 18.1%, by November 2020. That said, however, there are some agricultural commodities that have been performing quite well, including the ones discussed below:
Teucrium Soybean (SOYB)
SOYB exists as a structured commodity pool, which is essentially an investment vehicle that works by pooling investors’ assets for the purpose of investing in futures contracts. This ETF provides exposure to soybeans only. Soybeans are used for various purposes, including:
- Wood substitutes
Since SOYB’s focus is on a single commodity, this fund may come up as very attractive to those who would like to make a short-term tactical play on a single segment of agricultural commodities markets, as opposed to taking the long-term buy-and-hold approach. The holdings offered by SOYB are exclusively made up of soybeans futures.
SOYB’s total assets under management is so far past the $97 million mark, with its 3-month average daily volume being 255,832. In 2020, the futures had a 13.3% return and an expense ratio of 1.15%.
Teucrium Wheat (WEAT)
WEAT became the very first pure-play wheat Exchange Traded Product (ETP) to hit the market, 9 years ago, when it was introduced to investors. An ETP is essentially a security that tracks an underlying index or security, and one that is usually traded like a stock on an exchange.
WEAT is also offered as a commodity pool, in which the investors’ assets are combined and invested in wheat future contracts. Wheat has many uses in today’s world, including:
- Human food
- Animal feed
Just like SOYB, WEAT is can benefit the investors who would like to gain short-term exposure to specific commodity markets, arising from a particular interest in wheat at the time. it comprises several holdings of wheat futures contracts that have different maturities.
In 2020, this ETP had a return of 8.9%, and an expense ratio of 1.05. The assets under management are currently worth more than $71.1 million and the 3-month average daily volume is 372,535.
First Trust Alternative Absolute Return Strategy Fund
This ETF seeks to offer investors long-term returns, regardless of the current situation in the economy. It is therefore actively managed using defined long/short commodities strategies and has its holdings distributed across the entire market.
Its highest concentration, however, happens to be in the agricultural commodities sector, followed by industrial metals, and then precious metals. This ETF also happens to have a small exposure to livestock and energy commodities.
This ETF has both long and short positions, but the cumulative outcome is long exposure to commodities. As of now, FAAR’s main long exposures are:
In 2020, First Trust Alternative Absolute Return Strategy Fund had returns of about 2.7%, which was quite low in comparison to most ETFs in various industries. The expense ratio was 0.95%.
Investors also got an annual dividend yield of 1.02%, which is not bad but is also quite low in comparison to what other investors in different sectors receive. The inception date of FAAR was on May 18, 2016, and it currently has about $51 million worth of assets under management, with the 3-month average daily volume being 15,779.
As you can see, even with the best ETFs in the agriculture industry, an investor would still not dive in without questioning the annual returns. Taking the traditional approach to investing in agriculture may not work quite as well. This is why you should turn to investors who are making impressive returns in the same field, and who are willing to take you through an educational series to bring you up to speed with lucrative approaches to investing in agriculture.
Thank you for making it to the end of the article on the best agriculture ETFs. I hope that you enjoyed the read and that you will share it with your fellow investors. You can also share your insights in the comments section, or ask your questions with regards to the subject matter.
I wish you well,
Eric, Investor, and Team Member at Gold Retired!