Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some global agriculture stocks to your portfolio but don't have the time or expertise to hand-pick a few, the IQ Global Agribusiness Small Cap ETF (NYSEMKT:CROP) 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 IQ ETF's expense ratio -- its annual fee -- is 0.75%. 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 ETF is too new for us to be able to infer much from its performance. (It did underperform the world market last year.) It's the future that counts most, of course, and as with most investments, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why global agricultural small caps?
It's a win-win-win proposition: It's smart to diversify your holdings geographically, so that one region's downturn doesn't derail your performance. Agriculture is a solid defensive sector, as the planet's growing population will always need to eat. And small caps, while they can be more risky than larger companies, also offer more growth potential. (This ETF holds some more established mid caps as well.)
More than a handful of global agricultural companies had strong performances over the past year. GNC Holdings (NYSE:GNC) surged 36%, offering health and wellness products in the U.S. and abroad from more than 8,000 retail outlets. It's near a 52-week high and yields 1.1%. The company benefits from more than 2,000 store-within-a-store locations in drugstores and elsewhere, and is expanding beyond that model in China, building stand-alone retail locations. In its recently reported second quarter, revenue rose 9% and EPS nearly 18%. The company faces online competition, but it is finding some success with its Gold Card membership program, which has more than 8 million members.
Other companies didn't do quite as well over the last year, but could see their fortunes change in the coming years. Dole Food (UNKNOWN:DOLE.DL), for example, climbed only 3%. The company has been strengthening its balance sheet (in part by selling Dole Asia), but earnings and free cash flow remain in the red. Its founder has made a buyout offer for the company, but with the company on more solid footing these days, it might not be shareholders' best option.
American Vanguard (NYSE:AVD), specializing in agricultural chemicals, shed 9%. In June, it tempered near-term expectations, citing wet weather in the Midwest and Southeast. Its second quarter did indeed disappoint, with revenue up 2% and earnings per share down 3%. A more promising note is an agreement to co-market its Impact herbicide with Monsanto offerings. Management expects solid demand in the second half of the year.
CVR Partners, L.P. (NYSE:UAN) slid 16%. A master limited partnership (MLP) focused on nitrogen fertilizer, it yields a hefty 10.5%. The company's recent performance was whacked by a plant shutdown for repairs, but production there has resumed. (The company has just that one plant, so the shutdown was quite a big deal.) Its recent quarter was solid, with record production of urea ammonium nitrate (UAN) and a rosy outlook, as CVR's UAN facility has been expanded. Bulls like both its growth prospects and its massive yield.
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.