Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the global agriculture industry to thrive over time as the world's population keeps growing and demanding food and nutrition products, the PowerShares Global Agriculture ETF (NYSE: PAGG ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.75%. That's more than many ETFs, but also significantly lower than the typical stock mutual fund. The fund is fairly small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed reasonably beating the market over the past three years, but it's also very young, with just a few years on the books. It underperformed the S&P 500 in 2008 and 2010, though it beat it substantially in 2007 and 2009. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 19%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several companies related to agriculture had strong performances over the past year. GNC Holdings (NYSE: GNC ) , a retailer of health and wellness products in the U.S. with franchises in more than 50 nations, soared 89%. It benefits from more than 2,000 store-within-a-store locations in Rite-Aid drugstores, as well as locations in other retailers. GNC has been buying back shares of its stock and boasts higher profit margins than its peers. It has been growing its sales for 27 consecutive quarters.
CF Industries (NYSE: CF ) , meanwhile, jumped 33%, partly due to expected higher demand for fertilizers because of a disappointing corn crop thanks to dry conditions in the Midwest. CF is a major nitrogen and phosphate producer. Bulls like that its debt levels are lower than peers and that its revenue growth is faster.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Major potash producers PotashCorp (NYSE: POT ) and Mosaic (NYSE: MOS ) , for example, down 23% and 18% over the past year, respectively, should get a boost in demand because of troubles in corn fields. Indeed, Wall Street analysts have been upping ratings on fertilizer stocks, expecting strong performances. Fertilizer bears, though, worry about oversupply and lower prices in the future.
The big picture
Demand for agriculture isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
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