Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some fertilizer stocks to your portfolio, but don't have the time or expertise to hand-pick a few, the Global X Fertilizers/Potash ETF (NYSEMKT: SOIL) could save you a lot of trouble. Instead of trying to figure out which fertilizer stocks 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. This ETF, focused on fertilizer stocks, sports an expense ratio -- an annual fee -- of 0.69%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This fertilizer stocks ETF has underperformed the world market over the past year, but it's too young to offer a meaningful track record for evaluation. 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.
Why fertilizer stocks?
It's hard to say with much certainty what many industries will look like in the future, but we can be pretty sure that our planet's growing population will continue to require food. In order to boost the productivity of crops, fertilizers will be needed, boosting the long-term fortunes of fertilizer companies and investors in fertilizer stocks.
Fertilizer stocks didn't exactly deliver strong performances over the past year. PotashCorp (NYSE: POT) and Mosaic (NYSE: MOS), both members of the CanPotex exporting group, dropped 20% and 19%, respectively, over the past year. Smaller fertilizer companies, such as the Chemical & Mining Co. of Chile (NYSE: SQM), or "SQM," and U.S.-based Intrepid Potash (NYSE: IPI), fell harder, down 58% and 30%, respectively.
Part of the problem was the collapse of the Belarusian Potash Company cartel, which led to falling potash prices and shrinking profit margins. That effect has arguably been factored into the stocks' prices now, though, and some see fertilizer stocks bottoming soon – meaning that stock prices may rebound soon.
Fertilizer giant PotashCorp offers a 4.5% dividend yield for patient believers. Its last quarter featured revenue down 29% and earnings down 45%, and the company recently announced it will cut more than 1,000 jobs. Some worry about falling profits, but there will be long-term demand for fertilizer, and PotashCorp compares favorably with key rivals, enjoying a low cost structure. It has been buying back its own stock, too. Mosaic has struggled more and offers a smaller dividend yield of 2.2%. It recently made a big investment in phosphate.
Intrepid Potash, offering no dividend, has some prominent investors bailing out of it, but the billionaire Koch brothers have snapped up more than 6% of the company. It has been posting plenty of solid and improving numbers. It has a new low-cost mine opening in North America, too.
The big picture
If you're interested in adding some fertilizer stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies and make investing in them -- and profiting from them -- that much easier.
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